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5 Tips to Optimize Your Retirement Account Withdrawals

Matt Wiley | DEC 17, 2018

If you’re planning to retire within the next few years, you need to consider when you should start making withdrawals from your retirement accounts.

The order in which you withdraw from your accounts is extremely important -- it could let your tax-advantaged accounts grow to their full potential, make your savings last and even save you money on taxes.

1. Start With Your Investments

Withdrawing from your investments first gives your retirement accounts more time to compound interest.

Whether you have mutual funds, a brokerage account, ETFs, stocks or bonds, they’re all taxable, so you’ll have to pay capital gains taxes on withdrawals. Some investments also require you to pay taxes on distributions each year, like some mutual funds. 

2. Move on to Your 401(k) and IRA

Once you’ve exhausted your investment portfolio, move on to your tax-deferred retirement savings accounts: your traditional 401(k) or IRA.

Unlike taxable investment accounts, you won’t be charged income tax or capital gains tax as your 401(k) account grows each year.

However, you’ll owe incomes taxes on withdrawals. Some 401(k) plans will automatically withhold 20% or so of your account to pay for taxes. Check with your plan provider to see how your particular 401(k) works.

3. Wait to Tap into Your Roth

Put off withdrawing money from your Roth IRA as long as possible.

You paid taxes up front so you can take money out of your Roth IRA and it won’t count as taxable income.

Your Roth IRA also will continue to grow tax-free as you tap into your other accounts. Since a Roth IRA holds after-tax funds and the IRS doesn’t need to tax it again, you also don’t need to take Required Minimum Distributions. 

4. Stall on Accepting Social Security Benefits

If you want your maximum Social Security benefits, you’ll need to work until your “full retirement” age.

Benefits at age 62, 66 or 67 are not your maximum benefits. The maximum Social Security retirement benefit kicks in at age 70.

Each year after full retirement, your payout increases by a certain percentage based on specific criteria. To maximize on this strategy, we recommend holding off until you are 70 — payments will be the highest possible, increasing by 8% each year you wait. 

5. The Best Way to Plan Your Withdrawals

Determining the optimal sequence to withdraw money from your retirement accounts is different for everyone, so we recommend speaking with a financial advisor.

This new tool makes it easy to find the right financial advisor for you. Now you can get matched with up to three local fiduciary investment advisors that have all passed a rigorous screening process.

Follow these steps to get matched with the right advisor for you:

1. Simply enter your ZIP code below.

2. After you enter your ZIP code and answer questions about your financial goals, you can compare up to three top advisors local to you and decide which to work with.

3. Enjoy a better financial future!

SmartAsset - copyright 2018

SmartAsset - copyright 2018

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