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Dr. David Edward Marcinko MBA MEd
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Retirement is a stage of life that requires careful financial planning, not only to ensure that savings last but also to maximize income while minimizing taxes and penalties. One of the most important decisions retirees face is determining the order in which to withdraw money from their various accounts. The sequence of withdrawals can significantly affect both the longevity of retirement funds and the overall financial well-being of the retiree. While there is no single strategy that fits everyone, there are guiding principles that can help shape a thoughtful approach.
Taxable Accounts First
A common strategy is to begin withdrawals from taxable accounts, such as brokerage accounts or savings accounts. These funds are typically more flexible and do not carry penalties for early withdrawal. By using taxable accounts first, retirees allow tax-advantaged accounts like IRAs and 401(k)s to continue growing. This approach also helps manage taxable income, since capital gains and dividends may be taxed at lower rates compared to ordinary income. Drawing from taxable accounts early can reduce the risk of being pushed into higher tax brackets later in retirement.
Tax-Deferred Accounts Next
After taxable accounts are depleted or reduced, retirees often turn to tax-deferred accounts such as traditional IRAs and 401(k)s. These accounts provide tax benefits during the accumulation phase, but withdrawals are taxed as ordinary income. Timing is critical here. Retirees must begin taking required minimum distributions (RMDs) once they reach a certain age, and failing to do so can result in steep penalties. By strategically planning withdrawals from these accounts, retirees can balance their income needs with tax obligations. For example, withdrawing modest amounts before RMDs begin can help smooth out taxable income over time.
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Deciding where to pull money from first in retirement is a complex but crucial decision. A general framework suggests starting with taxable accounts, moving to tax-deferred accounts, and saving Roth accounts for last. However, the best strategy depends on individual circumstances, including tax considerations, income needs, and long-term goals. By approaching withdrawals thoughtfully and adjusting as needed, retirees can extend the life of their savings, reduce tax burdens, and enjoy greater financial security throughout retirement.
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SPEAKING: Dr. Marcinko will be speaking and lecturing, signing and opining, teaching and preaching, storming and performing at many locations throughout the USA this year! His tour of witty and serious pontifications may be scheduled on a planned or ad-hoc basis; for public or private meetings and gatherings; formally, informally, or over lunch or dinner. All medical societies, financial advisory firms or Broker-Dealers are encouraged to submit an RFP for speaking engagements: CONTACT: Ann Miller RN MHA at MarcinkoAdvisors@outlook.com -OR- http://www.MarcinkoAssociates.com
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