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Avoiding The Pitfalls Of Retirement Distribution Order – Goldstone Financial Group

Avoiding The Pitfalls Of Retirement Distribution Order - Goldstone Financial Group

The major milestone of retirement can be one of the most exciting and reassuring times in our lives; however, there are potential pitfalls that many retirees forget to consider. Withdrawal sequencing is a crucial part of the retirement planning process – yet many individuals retire without giving it much thought. Withdrawal sequencing involves determining the order in which you will withdraw from each account during retirement years so as to maximize your income while also mitigating tax consequences. If done improperly, withdrawal sequencing could cost you thousands over time! In this blog post, Goldstone Financial Group discusses why getting this step right is important and how to do it wisely.

Goldstone Financial Group On Withdrawal Sequencing: Avoiding The Pitfalls Of Retirement Distribution Order

Retirement distribution order is an important concept to be aware of when withdrawing money from retirement accounts during retirement. This concept, as per Goldstone Financial Group, is called withdrawal sequencing, and it involves deciding in what order you should withdraw funds from your various accounts during retirement so as to reduce taxes while still making sure you have the money you need for expenses.

Let’s take a look at how this works. Generally speaking, there are two types of tax-advantaged accounts most retirees will encounter: taxable accounts and non-taxable accounts. Taxable accounts are subject to federal income tax each year on any growth or earnings inside the account. Non-taxable accounts generally don’t require paying taxes until withdrawals occur, and then only on the portions of the withdrawals that represent growth or earnings.

So when it comes to retirement distribution order, says Goldstone Financial Group, you should typically withdraw funds from taxable accounts first because those funds are already subject to income tax each year, and no additional taxes will be incurred when they’re withdrawn. In comparison, withdrawing money from non-taxable accounts is often more advantageous because the withdrawal only triggers taxation on the portion of the withdrawal representing gains or earnings.

For example, if you had $50,000 in a traditional IRA account consisting of $25,000 in contributions and $25,000 in investment gains, any withdrawals you make would only trigger taxes on half (or $12,500) of the total amount withdrawn from the account. This can be significant savings when compared to simply withdrawing from taxable accounts, which will be taxed at the same rate regardless of where the money came from.

Data stats:

1. According to the U.S. Government Accountability Office, nearly 25% of taxpayers over the age of 65 don’t pay any federal income tax.

2. The average RMD for traditional IRA holders is estimated to be around $13,000 per year.

3. According to a survey by TIAA, 70% of retirees reported they didn’t know about withdrawal sequencing strategies prior to retiring.

Goldstone Financial Group’s Concluding Thoughts

On top of that, following this withdrawal sequencing strategy can also help you reduce or delay taking your required minimum distributions (RMDs). According to Goldstone Financial Group, RMDs are mandatory withdrawals from traditional retirement accounts once an individual reaches age 70 ½, and they’re based on a percentage of your account balance each year. By reducing balances in non-taxable accounts prior to reaching age 70 ½, you can lower the amount of your required minimum distributions, which could result in additional tax savings.