Given our massive deficit, I expect tax increases going forward regardless of which party occupies the presidency.
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Oh I do too… just a question of how quickly they go into effect.
The divorce does put things into a different light though. Certainly consult with a divorce attorney about that.
I would guess that if he keeps it clearly segregated he might be ok taking distributions, but definitely see what the lawyer says and go by that rather than the speculation of actuaries who don’t even know which state’s laws & precedents are the relevant ones.
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Thank you all for your help. With the exception of SMEs in any given field, you all consistently have the best advice. With the FA, we came up with a plan to increase contributions to 403B, start HSA once divorce is final, start a 529 for 3YO granddaughter (to eventually be converted to a Roth for her retirement).
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So this is an example…and I’d like you to poke holes in it if you will. I put a 10% return in (only for 1/4 of 2024, but full for the rest of the years. I won’t be taking a withdrawal in 2024. I used dummy amounts, but I think that isn’t relevant.
The thought is that I adjust my withdrawal in any given year to target the initial amount for the following year. E.G., if the balance at the end of 2025 is 11000 rather than 11275, I adjust the withdrawal to 1418.14 to start 2026 with 9606.86, and I realize that means in down years I would either not take a withdrawal, or do an offsetting investment into some other account.
| Year | Initial | return | withdrawal |
|---|---|---|---|
| 2024 | 10000 | 10250 | 0 |
| 2025 | 10250 | 11275 | 1668.140297 |
| 2026 | 9606.859703 | 10567.54567 | 1668.140297 |
| 2027 | 8899.405375 | 9789.345913 | 1668.140297 |
| 2028 | 8121.205615 | 8933.326177 | 1668.140297 |
| 2029 | 7265.185879 | 7991.704467 | 1668.140297 |
| 2030 | 6323.56417 | 6955.920587 | 1668.140297 |
| 2031 | 5287.780289 | 5816.558318 | 1668.140297 |
| 2032 | 4148.418021 | 4563.259823 | 1668.140297 |
| 2033 | 2895.119525 | 3184.631478 | 1668.140297 |
| 2034 | 1516.49118 | 1668.140298 | 1668.140297 |
| 2035 | 7.37024E-07 | ||
| Total | |||
| 16681.40297 |
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I assume you’ve cleared this with the divorce lawyer? At a minimum probably park any distributions in a dedicated high yield savings account that you don’t touch until the divorce is final just to be on the safe side. Sounds like there won’t be too much overlap between the marriage and the distributions.
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It’s hard to predict what Trump and a Republican Congress will do with taxes. But they’re already pretty low for actuary money. It seems likely that TCJA will be extended past the 2026 sunset. If they go out another 10 years then that probably gets you through the distribution period… if it holds. Dems will likely win in 2028 or 2032 and taxes may go up.
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If you knew tax rates were flat and your other income is likely to be relatively flat then your plan is probably reasonable. I’d still be tempted to try to max out your marginal tax rate earlier. It can’t hurt to do this unless you think rates are going down or your income is going down.
Using hypothetical numbers in 2024 dollars:
Taxable wages: $164,600
Standard deduction: $14,600
Taxable income excluding IRA: $150,000
Size of IRA: $300,000
24% bracket: $191,950
I’m going to assume everything (income, tax bracket, return on the IRA) is exactly in line with inflation for simplicity.
You could just take $30,000 a year for 10 years and that will hypothetically all fall in your 24% tax bracket… it’s not going to push you into 32%.
But… what if rates go up and the Dems kill the TCJA in 2030? You could have gotten more taxed at 24%!
So instead of pulling $30,000, pull $41,950 to “soak up” the 24% tax bracket. Then if rates go up you’ll have less left that’s getting taxed at the higher amount.
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