How Can I Get One Monthly Check When I Withdraw from My Retirement Accounts?
Fight Off The Two Towers of RMDs and Taxes and Make Your Retirement the Joy It’s Supposed to Be
You probably thought that life would get simpler once you retire. In some ways, it will.
But when it comes time (each month) to figure out how, when, and how much to withdraw from your retirement accounts, the fun has just begun. And by “fun,” this means spending many hours each month reading fine print, waiting on hold, and doing math.
You’re up against what we could call ‘The Lord of the IRS: The Two Towers.’ In this case, the towers are required minimum distributions (RMDs) and taxes. If you only had to face one of these impenetrable foes, it wouldn’t be so bad. But because they come at you from opposite directions and at the same time, you have to fight them both off, month after month.
What you want seems simple. You just want to keep getting one check each month, a combined withdrawal from all your retirement accounts, just as if you were still earning income. In fact, you are still earning income. But if you don’t properly account for your RMDs and the tax consequences of your decisions, you could end up paying hundreds of thousands more over time.
The Winding Staircase to a Single Monthly Retirement Check
Oh if life were just simpler.
The winding staircase begins by assessing what you have. You need to list everything out.
Traditional IRAs. Rollover IRAs. SEP IRAs. Roth IRAs. 401(k)s. Roth 401(k)s. 403(b)s. Roth 403(b)s. 457(b)s. Pensions. Profit sharing. Stocks. Dividends. Mutual funds. Index funds. Real estate. Social security. Certificates of deposit. Annuities. Even your 0.27% interest bearing checking and savings accounts.
It all matters because the amount of income you’re making in retirement affects your tax bracket. When you take RMDs, that counts as taxable income. But it’s complicated. For every rule, there are exceptions and options, each of which has new tax implications that will affect your decisions about how much to withdraw, and from which accounts and income sources.
When you bump to a higher tax bracket, you have less money available to achieve your life goals, and a more difficult road to making your money last. So it matters – a lot – which accounts you withdraw from, and when. You aren’t required to take RMDs until you’re 70.5 years old. But you are allowed to withdraw money from most retirement accounts earlier than that. Which ones should you withdraw from first?
Which Retirement Accounts Should I Withdraw from First?
If you look around, you’ll find scant consistency in the answers to this question.
Some say you should withdraw from your taxable accounts first and the pre-taxed accounts last. Others say you should withdraw from all your accounts proportionally from the beginning. Still others say you should withdraw from taxable accounts first, and then all the others proportionally. And yet still others say it depends on how old you are when you retire, how much you have in your various accounts, and what else you might be earning from stocks, long term capital gains, real estate, and the many other possible income sources.
Where’s a good mattress when you need one?
Plus, the amounts you must withdraw from each account will change every year once the RMDs kick in, because the IRS calculations update each year you get older.
Deciding how much to withdraw as your RMD is complicated. For traditional IRAs, just to show an example, here’s a chart from the IRS instructing how to calculate your RMDs, depending on your age and how much money is in your account.
The math changes every year.
You have to do these calculations for all your accounts that require RMDs, every year. And remember – this is only one of The Two Towers. This is just RMDs.
Even if you’re able to sift through all this and settle on a withdrawal strategy, that still doesn’t answer the primary question you’re asking:
How can I withdraw from all these retirement accounts but get just one monthly check?
You don’t want income trickling in every few days from dozens of accounts. You want one monthly check so you know what’s coming in and can focus on living your life.
Is it possible to do this on your own?
This is actually the one question about which there is pretty strong agreement. As a high net worth family or individual, you have money in a lot of places, and you’re going to need help figuring out how to withdraw from your retirement accounts in the most tax efficient way possible.
Tax Implications of Withdrawing Retirement Income
Taxes are Tower 2. Let’s start with the easy part. If you fail to withdraw your required minimum distributions, the IRS will hit you with a 50% tax – on each account you fail to meet the requirement. So reneging on your RMDs is not an option.
Now to the complicated part.
Some accounts are required to make RMDs once you turn 70.5 years old. Others are not. Accounts subject to RMDs include 401(k) accounts, traditional IRAs, qualified annuities, and pensions.
When you withdraw a required minimum distribution, it gets taxed. This is usually pre-tax income that you sent to these accounts during your working years, and it has grown without being taxed.
If you have a number of retirement accounts with RMDs, and these have high balances, you may be bumping yourself into higher tax brackets. Now, you may already be used to being in the highest tax bracket.
But if you’re only 55 right now, you have time to start planning ahead for this. There may be ways to reduce your tax burden by the time your 70 and a half birthday rolls around.
Tax brackets aren’t the only form of taxation you have to be concerned about either. What about equity sales, capital gains, and the other sources of income?
If you sell equities, mutual funds, or anything else that triggers capital gains or can have realized gains or losses, these actions all carry their own set of tax rules. Some actions trigger taxes that hit you at the marginal rate – which can be as high as 37%. Others can be reduced down to 20% or other rates – again depending on your income, which is what this is all about.
Can’t I Just Move All the Money to One Account?
Not if you want to avoid paying excessive taxes. Moving money from one bank account to another has no effect on any of this. But moving money from a tax-deferred retirement account to a Roth, for example, is a different matter. This is called a rollover, and the rules surrounding rollovers are super easy and simple, right?
We called these The Two Towers for a reason…
The rollover options available to you, and the implications of each one, are so complicated there simply isn’t room here to discuss them all. But here are a few of the issues in play:
- Which accounts are you transferring from and to?
- Are you still employed when you do your rollovers?
- How long can you wait to move the money to another place after you’ve moved it from the first?
- Do you have the money sent to you as a check or straight to a new account? Does it matter?
- What happens if you inherit an IRA or another account (or many accounts) from your parents?
- What if you inherit it (them) from your spouse?
As you can see, you’ll need help walking across the rickety ‘rollover bridge’ without falling into the ravine below.
What about real estate income? Ongoing passive business income? Self-employed income?
Do you see why the question about how to get just one simple monthly retirement check is so hard to answer?
Everyone’s situation is so different, and so many variables and decisions remain in play, that it’s essentially impossible to write definitive articles on this subject. That’s why any article you read makes your head spin, and raises more questions than it answers.
DIY Retirement Withdrawal and RMDs
Want to do all this yourself? Here’s the IRS page on required minimum distributions. It has 21 different links (as of this writing) answering various questions and scenarios, many of which lead to more pages of directions with additional options. And to be clear – this is just about RMDs. So that’s a good place to get started.
Yes! It Is Possible to Receive Just One Monthly Retirement Check
As you can see, it’s extremely difficult to figure out how to receive withdrawals in retirement in the form of simple monthly income. At Pillar, we know how important this is to you. As you were reminded at the start of this, retirement is supposed to be simple. Relaxing. Enjoyable.
You now get to live the life you’ve been working toward for so long. You’ve got the whole world in front of you. But standing in your way are The Two Towers of RMDs and taxes. And they are formidable foes.
We spent years perfecting a process so you can have exactly what you want: A pre-determined amount that refills your bank account each month. This is an amount we will agree about in advance.
What happens is – we do all the work. And you just get to live your life.
We have 30 years of experience navigating all these winding rollover staircases, secret tax death traps, and the RMD-tipped slings and arrows that get fired at you from all directions. So we walk that part of your retirement journey for you, and set it up so you just get a single income stream each month, without lifting a finger.
It takes a lot of work, as you can see. But our system is fully functional, and our clients love it.
If you’d like to know more about how to withdraw retirement funds without it feeling like a new job, let’s start a conversation.