When and How To Take The Money OUT

Of course we all know market timing is a fools game. It’s the reason we own index mutual funds. We get diversity of a type and efficiency. You don’t make a killing and neither get killed. But your life is also plan-able and you can predict expenses quite a ways into the future. I seem to be in a never ending cycle of Roth conversion optimization. My initial plan was to convert over 4 years which I am 1.5 years into. To do that I made a 600K pile of cash to live on which was designed to cover living expenses and conversion taxes. I sold in 2017 near the top of the market. after a nice run up on my time table. But the congress has decided to alter my conversion schedule with the SECURE act and extending my conversion window by an extra 2 years.

I have most of my assets at Fidelity. Fidelity allows for a nice thing, they will transfer assets from a TIRA to a Roth without first turning them into cash. Quite convenient. All I generate is a tax bill. I went through the sequence of conversion and found it best to transfer the highest risk assets first, getting the volatility out of the TIRA and into the Roth. It proved to be a wise choice since the market has done so well. I merely transferred my “so well” part out of a tax deferred vehicle into a tax free vehicle and let the growth happen tax free. I also had also paid post tax money into my IRA since I always made too much money to qualify for the pretax write down. My IRA’s therefore have a component of pretax and a post tax basis. I kept track of the 8606 (actually my tax software kept track since I always used the same tax software) and my basis is 94 cents on the dollar so for every dollar I pull out I pay taxes on only 94 cents. My wife also had post tax money in her IRA’s at a much bigger %. She had to pay tax on something like 83 cents of every dollar converted. So first thing I did was Roth convert ALL of her IRA which allowed me to convert a bigger amount that the limit I set for myself and still Remain in the same tax bracket I set for my conversion. My 6 cent tax break will continue for as long as I own the TIRA. So in a year and a half I’ve managed to get about half of my Roth conversion done

The SECURE act has changed my timing since I have longer to convert I can convert smaller amounts and pay proportionally less tax. A nice windfall. In order to fund the extra 2 years I realized I needed another 2 years of living money. When to raise that money? I decided now is the time. The market has continued to run up and the rule is buy low sell high so I sold and locked in my profit. I took some money out based on my predicted need. My cash is stored in a high yield savings account paying 2.45% so it keeps up with inflation so far.

Just some examples of when to take the money out

6 Replies to “When and How To Take The Money OUT”

  1. Very nicely done. You were fortunate to have to opposite end of the spectrum in the sorr game and did pull out at some rather high points.

    I anticipate a long time frame to covert myself if I plan on exiting my job by 53 or so. The key is to have the living expenses for said time period in a relative stable value account

    1. I could have just made my trade without creating a blog record but I think a blog record informs We all own portfolios of different risks but we would prefer to live risk free and nothing is more risk free than cash in the bank. The inverted yield curve and worsening political climate concerns me You can’t pick a bottom and you can’t pick a top but you can pick a trend. I am fortunate but I’m fortunate because I made myself fortunate. If the trend is up and you have a definable need you can’t go wrong locking in a gain to pay for that need. The US economy has given me nice gains. I don’t know how long those gains will continue and it doesn’t matter because for me I locked in my gain and turned my bet into a sure thing. That is the point. I had a friend who owns some property out by me. In the run up to 2008 land prices skyrocketed and the place across the street from him sold for 90K/acre. I told him to sell sell sell. He told me it might go to 120K/acre, he made a bet, but instead it went to 30k/acre. At 90K it was already way overheated. A bird in the hand…

      By the time it gets here you’ll have it figured out

  2. Good post demonstrating that it’s more complex removing your money than accumulating it. Your plan is solid and well thought out, mine is a work in progress. Until recently, most of my fixed income assets resided in limited-term muni bonds in my taxable account. As I approach retirement, I see the value of the pre-tax account holding significant bond assets to slow the RMD growth as you age. As I de-risk my portfolio, adding bonds to my 401k while selling equities is easy and cost free. I also have most of my accounts at Fidelity and agree they make it easy to Roth convert assets I want to keep without having to liquidate. If necessary, I can sell some of my low volatility muni bond fund to pay the taxes.

    With future rule changes whether SECURE, future tax bracket adjustments, etc., I suspect this is going to be an iterative process. Going to have to be like Google Maps and periodically recalculate the route.

  3. Yea, this blog is kind of dedicated to discovering how to assign money to various accounts and then spend money in an optimized way. You wouldn’t think it was quite so difficult but the government has set little traps along the way like an accelerating RMD. They have some very smart CPA’s running this down. In the FIRE community everybody thinks what you spend is a fixed percentage like 4% If you be thinking that you would be wrong. I figured out that if the government wants more money all they have to do is change the RMD schedule. Each year more money will come out to be taxed as ordinary income and will sooner kick you up a tax bracket. So much for the promise of tax deferred accounts. I think muni bonds are helpful if you have some yield

  4. I think your plan sounds solid. You will have even less pressure on your portfolio when you start taking out your delayed social security. A little of that can go a long way.

    It works if you have a modest spend rate and SOME funds like social security which is indexed to inflation and guaranteed.

    Like yourself, we plan to have 40-50% of our expenses covered by those government funds when we are 70.

    I think those who minimize government benefits should be prepared to have MASSIVE amounts saved up to risk in their portfolios.

    Yes, your portfolio will eventually recover. But one might not be alive long enough to witness it. (Therein lies my concern with high equity portfolios)

    When my husband retires, he will frontload 10 years of expenses before our trigger gets pull.

  5. Hey MB

    I’ve tried to post on canuckmoney but for some reason it doesn’t post. Maybe I’m going to spam. 10 years is a nice round number, for me it’s going to b 8 years total covered before all the levers come into play. After that I’m going to fund 5 year aliquots. The RMD schedule kind of makes the TIRA inflation adjusted as well though not really tied to inflation it will behave “as if” it was.

    Your portfolio perfectly reflects your desires. It pays you some return at a well defined risk of your choice, and is easy for you to manage. Hard to beat that. It’s a great insight for you to create such a vehicle. You get to spend your time devoted to your family watching your children grow instead of worrying about squeezing every bloody cent out of an investment and engaging in the high drama and dick measuring of “finance”. This is much like my approach

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