Caldwell Trust Company – Building Wealth and Preserving Legacy Blog

How to Plan Your Retirement Withdrawal Strategy

Written by Caldwell Trust | Jan 12, 2016

You’ve worked hard and invested wisely, and now you’re ready to retire. Congratulations! But do you have a plan for withdrawal? Just as investing in the right tax vehicles helped you save money for your retirement, so too can a strategic timing of your withdrawals. In this post, we’ll look at which accounts you should look to first, to help extend the life of your savings.

Annuities and IRAs

If you plan on leaving an inheritance to your heirs, it’s favorable to withdraw from your annuities and IRAs first, rather than selling off existing assets. The reason for this is that IRAs and annuities have no step-up in basis at the time of your death, whereas property that has appreciated in value does. 

If you have stock that has appreciated in value, for instance, your heirs are not liable for the capital gains tax on its increased value, only its current market value. Your IRA account, on the other hand, will be taxed at your current income tax rate regardless. The effect of this is that assets which step-up at inheritance may be more valuable to your heirs because of their decreased tax liability. 

Designate a Charitable Beneficiary  

One way you can lower the tax rate of your inheritance is by giving enough money away that you’re in a lower tax bracket. If done as a planned gift, such as a charitable gift annuity, this has the added benefit of using your current wealth to be disbursed as an annuity for the remainder of you and your spouse's lives, ensuring a stable form of income for you both. 

Withdraw From Taxable Investments and Roth IRAs First

If you find yourself needing to increase your retirement income, you can instead choose to prolong the tax-deferral benefits of traditional IRAs or annuities you may own by drawing income from Roth IRAs and other taxable investments first. If you have both annuities and traditional IRAs, look to see which one allows longer deferral. For an IRA the maximum age you can defer until is 70½. The maximum deferment for annuities can vary depending on the company.

Depending on your circumstances or goals, you may want to take just one of these approaches, or incorporate a blend of all of them. But as with any major financial decision, it’s always best to discuss your options with a qualified professional first.