I'm going to retire in about 6 weeks, so looked into what the best options are for my 401K. I learned that if I withdraw it all, the IRS gets 20% right off the top (I'm over 70). If I leave it in, and withdraw a monthly amount, that amount would still be heavily taxed. So I don't know what the best course of action is. Would not mind some suggestions from FReepers.
“… looked into what the best options are for my 401K. I learned that if I withdraw it all, the IRS gets 20% right off the top (I’m over 70)….”
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That’s 20% of the distributed amount WITHHELD for fed tax. If your 401K amount is substantial you could well put yourself in a tax bracket higher than 20%… up to 37%. Plus depending upon where you live you would owe substantial state and local income tax on it.
Most people would be off NOT taking a total distribution but instead take amounts out over time as needed.
>I learned that if I withdraw it all, the IRS gets 20% right off the top (I’m over 70). If I leave it in, and withdraw a monthly amount, that amount would still be heavily taxed. So I don’t know what the best course of action is. Would not mind some suggestions from FReepers.
It’s going to depend on your location and other income sources, and of course prediction on future taxation rates.
The goal is to minimize tax paid by staying in the best tax brackets.
A secondary goal would be to maximize income — or not depending on your needs. If you expect your 401k to continue to do well, no need to pull it fast. OTOH if you expect risk, go faster. You could always re-invest back into a personally-owned (or personal trust) investment account for options not in your 401k.
Lastly don’t forget the RMD; no point in penalizing yourself with that rule.
So tl;dr: it depends. Get your spreadsheets out :)
It's a race! I'm due to pull the trigger in about 10 weeks.
Seriously, I have worked with a number of CFPs over the last few years and all of then stated that pulling out the full amount is not the way to go. Clearly.
As I understand it, there are penalties and the taxes will far outweigh the taxes on what is withdrawn incrementally...which, as I'm doing is to roll off into a different vehicle which is also tax deferred . Once you build a strategy, the tax liability is quite lessened.
BUT...I am not the financial wizard in this mix. That would be my wife. She's an ace.
Plan you work and work your plan.
A quick calculation.
If you make $30,000 at age 30 and contribute 10% and employer does 50% match and rate of return is 5% and you retire at age 65,
You get: $477,000+
Buy individual stocks as I did. In 12 years I was able to retire going from $13,000 to seven figures despite congress causing a major drop in 2022 and 2023 and expect my AMD stock to double again this year.
In the last 4 months it doubled.
Look at Nvidia as it too doubled in the last 4 months and tripled in the past year.
Buy AMD and Nvidia. Get rich!