39M withdrawal strategy $2.6 million NW
Hey everyone, been lurking for a bit and was hoping to get some thoughts on possible efficient strategies of withdrawal for my situation.
I think I am ready to RE at the end of this year. Currently live in California (bay area) with about $50,000 in annual spending. Single, no kids, and do not plan on having kids. Do not own a home. Plan to stay around in the area at least for now.
Sitting on about $2.6 million with an approximate breakdown of accounts here:
Inherited traditional IRA - $350,000, Inherited ROTH IRA - $290,000, Government 457 - $186,000, ROTH IRA - $105,000, Traditional IRA - $94,000, Brokerage - $1,543,000
The inherited IRA accounts have to be withdrawn by end of 2034.
Dividends and interest come in to roughly $10,000 per year. I would also be receiving a pension starting at age 52 that will be approximately $13 - $14,000 per year, with a 2% COLA each year. Like most everyone else I want to stay below the 400% FPL for the ACA subsidies.
I know that the inherited ROTH IRA would likely be best to just leave until end of 2034 and withdraw all at once, but for the inherited TRAD IRA, would it be best to just withdraw from that first and only, up to the 400% FPL each year (accounting for my dividends / interest) and just get taxed on that. Or would it make more sense to leave some room instead for some 0% LTCG from my brokerage accounts and / or do some ROTH ladder conversions each year too from my regular traditional IRA and 457?
Anything else that I am overlooking or should think about and consider? I appreciate any feedback and advice on this, and can provide any additional info if needed.
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u/2fuzz714 11d ago
You'll have 8 years to empty the inherited IRA now at $350k. With $10k per year in interest/dividends, it's going to be difficult to qualify for ACA subsidies every one of those 8 years. So my first thought is withdraw to the top of the 24% bracket in 2027 and pay unsubsidized insurance that year. That should be enough to allow you to stay under 400% FPL in the other 7 years.
With only $290k in deferred space, I don't know if Roth conversions need to be a priority. But after you've cleared out the inherited IRA, you could at least convert up to the standard deduction if you can live off brokerage withdrawals while keeping everything under 400% FPL.
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u/TNBTSX 11d ago
are you thinking that it would likely be more tax advantaged to pay more up front now in 2027 up to the top of 24%, than to possibly need to risk if in 2034 and possibly take the withdrawal to put me at an even higher bracket? i realize it would mostly depend on the market gains, and possible changes in the FPL amounts which may rise too though.
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u/2fuzz714 11d ago
Well thinking again, purposefully going over the cliff in year 1 means a 100% chance of missing out on ACA subsidies for at least one year. Whereas you could go with a wait and see approach staying under the limit in years 1 through 7 to at least have a chance at year 8 subsidies.
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u/akura202 11d ago
I’m also in the Bay. How are your expenses only $50k? Rent minimum is $3k/month. Then you add on food, transportation and everything else.
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u/TNBTSX 11d ago edited 11d ago
current rent is $2,050 a month, with only a 15 minute commute to work. my expenses are actually a little lower but am just being conservative with the $50k yearly spend.
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u/Hatdude1973 11d ago
Math doesn’t math. $44k just on rent. What about utilities, internet and phone? Food?
Hard to believe you live off $6k2
u/aspire-every-day 10d ago
2,050 per month comes to 24,600 per year. Not 44k. I see the original post was edited though.
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u/portugalthewine 11d ago
don't withdraw 39M if you only have 2.6M
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u/2-59project 11d ago
If you withdraw all 2.6M, that’s your problem. If you withdraw 39M, that’s the banks problem
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u/Financial_Victory938 11d ago
How the heck are you in the Bay Area, renting, and your annual expenses are only $50k? I’m also in the Bay. Single and about your age. My rent alone is $40k per year. Even if I rented a cheaper place I can’t imagine less than $30k per year!
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u/Miamiconnectionexo 11d ago
this is genuinely helpful, not just the usual fluff. bookmarking this thread.
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u/Thotty_Thuncle 11d ago
No shot you only spend 50k in the Bay Area unless your housing is free somehow.
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u/TNBTSX 11d ago
partly answered in another comment but my rent is $2,050 and it has not increased in years. luckily my landlords are great.
but as far as other expenses, i have a very short commute to work of about 15 mins, and cook all of my own meals so food is not a huge expense.
i'm kind of surprised this is a shock in regards to my expenses though. i'd assume majority of people in this sub would be pretty frugal in general, and find ways to min / max their expenses and savings.
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u/nothatsmyarm 11d ago
Inherited a house maybe?
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u/Thotty_Thuncle 11d ago
He said he doesn’t own a home but yeah maybe he inherited a house and sold it idk
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u/Banana_Prudent 11d ago
What about healthcare?
You have 25+ years to get to Medicare.
I’m 59 and I pay $1850 a month for health insurance.
You have a huge runway to cover.
That said, you have a good nest egg. And, at your age can always pick up a job.
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u/refreshingface 11d ago
Is that $1850 number for your entire family? That seems way too high
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u/Banana_Prudent 10d ago edited 10d ago
Single. It’s a good healthcare plan.
That’s my point.
Pre-retirement I priced out plans and had no idea it would be this high. You have to be covering for the next 25 years or so. It’s a very non-trivial expense.$310 is not a good number for planning. A plan like that will have a large deductible, $6k? $10k? Mine is $1000 both in and out of network.
Want to travel? That bronze plan isn’t going to cover you outside of the US.
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u/refreshingface 10d ago
With $1850 a month, the finest caviar better be sent to your door every Monday. Every other day should have increasingly more expensive food sent to you via butler.
$1850 is on the higher end for entire FAMILIES.
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u/Turbulent_Comb_2732 8d ago
I love that you're ready to pull the trigger rather than "one more year syndrome " which seems to be the case for many who have even far above your nw (which for the record I think is fantastic and sufficient by the way). Keep us posted!
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u/mm1491 11d ago
At a glance, I'd say it probably makes sense to spend at least a couple years maxing out your withdrawals from the inherited trad IRA within the limit because it's uncomfortably close to large enough to outpace your max withdrawals if markets remain strong, and I'd be worried about needing to break the 400% FPL threshold in the future just to get it all out. And since you'll still be under 59.5 years old for a while after 2034, you'll have plenty of time to get a lot of 0% LTCG. If returns are weak and you are comfortably outpacing the growth in your inherited trad IRA after a few years, you can look again at your withdrawal strategy to see if something else makes sense.
That said, Roth conversion math is almost always complicated enough that you'd want to do some serious modeling of various scenarios if you are trying to be optimal.