Should We Always Pull From our Brokerage Account First in Retirement? (Hint: No)

[@eddieloujones2673]

This is the perfect video for me. I'm also in Ny state and facing the exact same questions albeit as a single person. I will add that capital gains in ny state are taxed at ordinary income rates, so their capital gains will face a 5 .5/6 percent tax.That fact does make the use of the 20/40k pension/ira state tax exclusion even a little more appealing. If they are moving to Florida, a state that doesn't tax capital gains, use up the brokerage then. Well done James. It's not easy to explain this stuff but you did an excellent job.

[@otbricki]

excellent overview of the strategies to consider in early retirement.

[@ewe2b]

If health insurance before 65 is a consideration, keeping the MAGI amount low will help with ACA credits. I.E.: balance capital gains and losses and limit traditional IRA distributions to look poorer on paper.

[@jaspersanfellipo7184]

Outstanding video, James. Thank you for the deep cut analysis. Very helpful to consider the prospects of treating a taxable account like a Roth IRA with careful capital gains management.

[@andyrossi6188]

Hi James. Big fan here. Something really helpful would to offer we soon to be retires a sort of check list. Maybe “top ten things to ask your planner about “. So maybe it looks like : Portfolio allocation Tax plan. Ss timing. Roth or no. Aca subsidies v income v tax planning. In other words what are the let’s say top ten things every person should force their planner to specially address for them. A sort of checklist of things to be sure you cover w planner so nothing is missed.

[@438Kurt]

great information & super helpful !

[@daveschmarder-1950]

I live in NYS and over 65. I'm in the 12% Federal bracket. I have no tax on my NYS SS and all my IRA distributions. Also, I pay almost no school tax as my house is lower value. I happily live in a nice rural neighborhood.

[@thatguy00842]

Since I'm in NY and have a similar situation, this is really helpful. Putting some graphics on screen (like adding up the totals of withdrawals) would be helpful.

[@karendurston2528]

Funny - I am also in NY and was surprised to hear that state taxes might not be as bad as I imagined in retirement. Thanks for such detailed information (thought I admit I need to listen to it more than once to let it sink in). Thanks!

[@JayRay9999]

Excellent video! And yes, if your 59.5, your $20K conversion in NYS is state income tax free. And Florda has HIGH real estate tax and astronomical Insurance. All I have to say is: no income tax, so what!

[@Lolatyou332]

I have most money in a brokerage at 31yrs old.. i would basically just plan to have enough in pre-tax to basically be in the 0-12% tax brackets and the rest from a brokerage account and let my roth grow basically forever as a safety net / inheritance. You should prioritize pre-tax while you are in sub 20% tax brackets first unless there are some very unique situations.

[@TrevorDodson-t6t]

Great video/podcast James, thanks for all the great content!

[@DarylZmerzlikar]

Great video with good points! Keep crushing it !!!

[@teddymoore9938]

Hey JAMES, thanks for your information as always it’s a real eye-opener and I myself is studying to become a CFP so I love your podcast. I’ve been following you for the last three years now and the knowledge that I’ve gained from you. It’s unbelievable. Thank you so much and continue to bring the good content to us ! thank you ! thank you ! thank you!🙏👍👏👏👏👏

[@dlg5485]

Having tax flexibility in retirement is exactly why I save in all 4 acct types... 403b, Roth, HSA and brokerage, each with different tax treatment.

[@Nepomuc]

Great video James, I really like your presentations. I went to you website but was not able to find out whether your company is fiduciary or not, could you please let me know?

[@TranscendingWhale]

Appreciate the video James! One question, why would realizing those gains and buying back not trigger a wash rule? Ive never seen anything on LTCG being excluded. The rule might just be that since LTCG status gets automatically applied to the replacement sale you can sell that stock in less than a year and still get LTCG tax treatment, but the basis is still adjusted due to wash sale. Could be wrong though.

[@ericgold3840]

I had the same question. I think the answer is that the 'wash rule' applies to claiming *losses*, not gains

[@BarbHurley-s6m]

Excellent 🎉

[@murbanaiy2574]

Very informative. Could you please do a video with retirement income taxe rate at state level (social security, corporate pension, tax exemption,/exclusion, standard deduction, capital gains, etc) in California single filers?

[@FunStuffBuddy]

How do you stay in the 0% tax bracket typically if you also need to withdraw/sell funds as INCOME simultaneously since you aren’t working anymore? Seems like they’d have to live completely on cash to be able to mostly/solely sell long term capital gains and still stay in 0%? Aren’t you typically selling positions to provide income at the same time?

[@rempo]

It seems to me that most of your (and Ari Taublieb’s) case studies involve people with pensions. Only 21% of Americans have pensions, largely confined to public sector employees. It would be more beneficial to me (and most others) if more of your case studies focused upon folks without pensions.

[@James4cycling]

NY conversions are allowed with the $20,000 exclusion.

[@gauravipal5691]

Even if the capital gains when managed correctly may amount to zero taxes in a brokerage account I think you are leaving out two very important differences from a ROTH: 1) Dividend and interest distributions in an ordinary account are treated as ordinary income EVEN if you reinvest them. 2) Balancing your asset allocation on an annual basis in a brokerage account can have tax consequences but not so in a ROTH. You regularly talk about how you can be tax free with a brokerage account and always leave out that distributions are treated as ordinary income.

[@enonknives5449]

I can see absolutely no reason to withdraw from taxable accounts before tax-deferred accounts. (Unless, or course, you can't withdraw without a penalty, due to age.) Why pay lower taxes today so that you can pay much higher taxes later. It makes absolutely no sense. You can target how much you will pay in taxes when you know your pension and IRA withdrawals, and also avoid high RMDs in later years. Save your taxable account withdrawals for later, relying on long-term capital gains to pay less in taxes. Save Roth IRAs for last. Also, leaving taxable and Roth accounts to heirs is MUCH better than leaving tax-deferred accounts. I've asked for someone to give me a good reason to withdraw from taxable accounts first and NO ONE HAS BEEN ABLE TO DO IT.

[@nutria12247]

If you have a lot of money in taxable accounts that is producing interest, dividends, and capital gains, you might want to pull from taxable first to keep your MAGI lower for the ACA subsidy. This would especially be true if your tax deferred account balances are not that high to worry much about RMDs.

[@kersting13]

Yeah, I will have an RMD issue, and my basis in my brokerage account is pretty low, so most of the amount pulled will be subject to capital gains, and I'm well into the 15% CG level.

[@serialmigrant]

I would aim to pay lower taxes today if markets were down over an extended periods...at the onset of retirement...and it would allow me to sell less equities and maintain a similar level of consumption...

[@J-2024-v8i]

A good reason to draw from taxable first is to avoid a penalty if you are under 59.5. Another good reason is to keep your MAGI low for ACA subsidies before Medicare age. In the latter, it also depends how much you need for spending: if you withdraw from your IRA, it is all taxable, but if you withdraw from brokerage only the gains are potentially taxable (you have about $90k in a 0% tax bracket) and the rest is all basis and therefore tax free, giving you enough money for expenses but without increasing your MAGI and losing ACA subsidies. Of course, it all depends how large is your Trad IRA since, if too large, your RMDs could be much higher than the money you saved in subsidies, assuming you have funds in the brokerage to pay for the high cost of insurance without subsidies. As you can see, everyone’s situation is different, but maybe would not apply to you.

[@learning.finances]

I agree with your thinking and feel most people would spend less in total taxes during retirement if they pull money from pretax accounts prior to taxable accounts.

[@LilianScott-dy5nz]

Pulling from brokerage accounts first in retirement may not always be the most tax-efficient strategy, as it can lead to higher taxes on Social Security benefits, reduced Medicare benefits, and increased taxes on future withdrawals from tax-deferred accounts like 401(k)s and IRAs.

[@ericgold3840]

Last week's makeover video was fantastic; this video was .... not. I listened for 15 minutes, only to be told that 'it depends' and a financial advisor should be paid for. Ughh. I think the more useful conclusion here is that complicated questions like this, on the order of withdrawal, may need software help. I like RightCapital (which James uses) and Pralana. Either can be rented from the companies that write and support them. Even without software though, a most pertinent question here relates to medical insurance. If the couple are receiving ACA credits then keeping the AGI low is probably the correct answer until Medicare. The years then to think about Roth conversions are Medicare years before SS begins. It is important to remember that the mAGI that ACA uses in calculating the PTC includes DIVs and capital gains.

[@learning.finances]

You mentioned at the end if all your money is in your roth IRA and brokerage account that your in a sweet spot. Don't you want to leave some money in Pre-Tax accounts to take advantage of the standard deduction? Doing this I feel would provide the lowest amount of overall taxes in retirement.

[@rdspam]

Different situation, but a related question on from where to pull money: I often see plans evaluated based on value at the end of plan. But heirs are not often addressed. My brokerage account is about 60% capital gains, and growing. As that gets stepped up on death, it seems preferable to leave $X in a brokerage account rather than >$X in an IRA, if the 10 year required IRA distribution pushes my kids into a 33+% bracket on the money. Paying 15-20%, plus NIIT/Medicare surcharges, losing the step-up, seems worse than efficiently withdrawing from pre-tax.

[@davebickers7209]

Another great episode. Does the fact neither of them are 59 in anyway impact the tax situation?

[@gmanblue2026]

I'm not concerned about minimizing my taxes. I'm interested in maximizing my income. These are not always the same thing.

[@shanew7361]

If I buy and sell the same stocks within a year and have profits under the $47,025, do I have to pay federal taxes because it's not a long-term gain or no?

[@J-2024-v8i]

Yup, you pay Federal tax at ordinary income rates since it is a short term gain. You also need to check how your state will tax short term gains. My state taxes them at double the ordinary income state tax rate.

[@vchap01]

Long term capital gains only apply if you have held the stock for at least a year. Short term capital gains are basically regular taxes. Capital gains are federal taxes but at a more favorable rate. Some states charge them as well at a smaller percentage. The $47,025 amount has to include your earned income if you are still working. There is also a standard deduction of $14,600.

[@globalfamily8172]

All bills are expensive in CT. Electric, property taxes and even half of your social security. Who could live on 45k? Really?

[@shanew7361]

Doesn't the government limit the maximum amount per year you can contribute to IRA's combined totally? Thus, in the example, they withdraw 20k from their ira to convert to a roth ira of 20k that is over the alotted maximum per year allowed.

[@J-2024-v8i]

A Roth conversion is a taxable “transfer” from an IRA to a Roth IRA. This is not a contribution. There is no annual limit on how much of your IRA you can convert.

[@jjdub35]

no limit on roth conversions

[@Tom-mn6tm]

There is no limit on conversions, the limit is on contributions.

[@timtasker5724]

There's no limit on traditional IRA to Roth IRA conversions. Just have to pay income tax on the amount converted.

[@vchap01]

Conversions (traditional IRA to Roth IRA) are not the same thing as yearly contributions of post tax money. You can convert the whole account at once but you would get hit with a tax bomb. Instead you convert just enough to stay in a specific tax bracket, whether it is 20%, 12%... or 0% depending on the situation during multiple years.

[@hansangb]

I'm sure Mary and Pat are happy. Not because you chose to showcase it but because you gave a few attaboy's in the video. 😂 also them wanting to move out of NY checks out