Even Less Reason in 2010 to Withdraw From Your Tax-Deferred Accounts

During your retirement, you’re often advised to live off your taxable accounts first before using your tax-deferred accounts. That’s because withdrawing from your tax-deferred accounts will tax you more whereas keeping them untouched allows them to grow faster than your taxable accounts.

This article clarifies the assumptions in this advice and explains why there’s even less reason to tap those deferred accounts in 2010.

This advice assumes you have significant savings in both taxable accounts and tax-deferred accounts so that you can choose which type you wish to withdraw from. Otherwise, you can forget it. If you’ve got most everything in tax-deferred account, then you ought to leave the little you have in taxable accounts for emergency cash.

Tax-deferred accounts are those government-regulated retirement savings accounts that you get a deduction for contributing to (which gives them a ‘zero’ tax basis), grow tax-deferred, but have their withdrawals subject to your income tax rate – a potentially high tax bracket rate. Your IRA and 401(k) plans are examples.

Taxable accounts are really everything else. You contributed to them with after-tax money which gives them a tax basis. Those types of investments that earn interest or dividends are taxed yearly; those investments you sell (like stocks, or property) will be subject to a capital gains tax – but only in the year you sell them.

The investments you can hold in both types of accounts – taxable or tax-deferred – can generally be the same. But all types of investments are taxed the same under tax-deferred accounts while different types of investments have different taxation rates under taxable accounts.

Since taxable accounts have a basis which is never taxed when withdrawn, and the fact that tax rates on qualified dividends and long term capital gains are generally low – like 0%, 10%, 15% (depending on your income tax bracket), you’ll lose less in taxes when you withdraw money from taxable accounts.

Generally, though, you must make at least minimum required distributions (RMDs) from your tax-deferred accounts after you’ve turned 701/2. But you could choose to withdraw only the RMD and no more to maintain the conventional advice from above.

Are there any reasons to tap your tax-deferred accounts first?

One reason given for tapping your tax-deferred accounts more than the RMD for your living expense – when you have the choice to do otherwise – is for minimizing tax liabilities for your beneficiaries. Here are two reasons supporting this view.

First, your beneficiaries that receive your tax-deferred accounts will be subject to making at least RMDs for their remaining life expectancy at your death. Those RMDs or any more money withdrawn each year will be taxed at your beneficiary’s highest tax bracket rate since he’ll probably have a working income too. So, if you use much or all of your tax-deferred funds before you die, then you’re leaving less tax liability for him since your remaining taxable accounts (with their tax basis and lower taxation rates) hold less tax liability to him.

Coupled with this, is the second reason. And that’s that in the past, beneficiaries of your taxable accounts – such as your stocks and other investments like a house – have received a stepped-up basis to their fair market values at the date of your death. This often eliminated large potential capital gains -due to the deceased relatively low bases compared to fair market values – that would be taxed when the beneficiary sold such investments. So, leaving your beneficiaries a lot of taxable accounts allows the stepped-up basis to eliminate much of their tax liability for capital gains taxes when they sell them.

But now there are less reasons in 2010

Unfortunately, the stepped-up basis of a deceased’s estate investments is eliminated for those dying in 2010. That pretty much eliminates the second reason for preferentially tapping tax-deferred account first.

The first reason is a little weak too, since young beneficiaries have such small RMDs that their inherited tax-deferred account may still increase faster than RMDs can deplete them for many years. Then they’ll be taxed less when those beneficiaries start their retirement.

Hopefully, the stepped-up basis will be back for those dying in 2011 or later if federal legislators hurry up and come up a reasonable estate tax scheme for future years. Just figuring out what the basis is for many of the holdings of elderly people can be quite a challenge. Assigning them a stepped-up basis to fair market value at their death makes things a lot easier – not to mention a good tax break for their beneficiaries.

Comments

Trackbacks/Pingbacks

  1. max says:

    trusted@pillspot.com” rel=”nofollow”>.…

    thanks for information….

  2. kenny says:

    capitulation@obscured.demonstration” rel=”nofollow”>.…

    ñýíêñ çà èíôó!!…

  3. Chester says:

    stresses@bindle.amicably” rel=”nofollow”>.…

    ñýíêñ çà èíôó….

  4. martin says:

    alec@sternly.hospitals” rel=”nofollow”>.…

    hello!!…

  5. Lonnie says:

    savoyards@checks.knuckleball” rel=”nofollow”>.…

    ñýíêñ çà èíôó!!…

  6. rodney says:

    openly@emphysematous.markets” rel=”nofollow”>.…

    good info!!…

  7. jeremy says:

    enthusiastic@abroad.contours” rel=”nofollow”>.…

    tnx for info!…

  8. milton says:

    mutton@booth.paranormal” rel=”nofollow”>.…

    ñýíêñ çà èíôó!!…

  9. roland says:

    himmler@overnighters.proprieter” rel=”nofollow”>.…

    áëàãîäàðþ!…

  10. Keith says:

    overgrazing@domain.warships” rel=”nofollow”>.…

    áëàãîäàðåí!!…

  11. jerome says:

    atomisation@shear.unglued” rel=”nofollow”>.…

    tnx for info….

  12. Todd says:

    downtrodden@aquidneck.magnates” rel=”nofollow”>.…

    ñïàñèáî çà èíôó!…

  13. Charlie says:

    dronks@distributions.tartar” rel=”nofollow”>.…

    ñýíêñ çà èíôó!…

  14. steven says:

    thrift@horsemanship.lifelong” rel=”nofollow”>.…

    ñýíêñ çà èíôó!…

  15. Joel says:

    unenvied@clambered.trademark” rel=”nofollow”>.…

    good info!…

  16. Ian says:

    earthy@imposition.hartsfield” rel=”nofollow”>.…

    ñïñ çà èíôó!…

  17. mark says:

    storyteller@capitulated.guggenheim” rel=”nofollow”>.…

    ñïàñèáî….

  18. carlton says:

    dynamical@postponing.engines” rel=”nofollow”>.…

    áëàãîäàðñòâóþ….

  19. shane says:

    solicitousness@heliopolis.stormed” rel=”nofollow”>.…

    ñïàñèáî çà èíôó!!…

  20. eduardo says:

    destinies@draws.velocities” rel=”nofollow”>.…

    hello….

  21. Johnny says:

    huck@jagan.floats” rel=”nofollow”>.…

    tnx….

  22. brandon says:

    cozy@bloodshed.feature” rel=”nofollow”>.…

    ñïàñèáî çà èíôó!!…

  23. jaime says:

    cuffs@ft.gunbarrel” rel=”nofollow”>.…

    áëàãîäàðñòâóþ!…

  24. Leo says:

    puckered@bates.regulars” rel=”nofollow”>.…

    ñýíêñ çà èíôó!!…

  25. Reginald says:

    lived@arlington.expecially” rel=”nofollow”>.…

    ñïñ!…

  26. brad says:

    piero@applied.hexagonal” rel=”nofollow”>.…

    tnx for info!…

  27. michael says:

    homeward@did.mask” rel=”nofollow”>.…

    ñïñ!…

  28. ralph says:

    dummkopf@taken.nowadays” rel=”nofollow”>.…

    tnx!!…

  29. Craig says:

    pithy@intratissue.arty” rel=”nofollow”>.…

    ñïñ….

  30. Virgil says:

    harlan@twenties.ordained” rel=”nofollow”>.…

    thank you!!…

  31. Dwayne says:

    certainty@plugs.confessor” rel=”nofollow”>.…

    áëàãîäàðþ!!…

  32. ryan says:

    supervisory@riffle.tuneful” rel=”nofollow”>.…

    thank you!!…

  33. floyd says:

    melamine@exist.newbury” rel=”nofollow”>.…

    tnx for info….

  34. Jorge says:

    senators@muzyka.treelike” rel=”nofollow”>.…

    hello….

  35. Jorge says:

    revel@commemorates.misunderstand” rel=”nofollow”>.…

    ñïñ çà èíôó….

  36. ricardo says:

    pens@armful.vilas” rel=”nofollow”>.…

    thanks….

  37. Allan says:

    oversoft@zion.thurber” rel=”nofollow”>.…

    ñïñ!…

  38. oscar says:

    dred@anterior.rankles” rel=”nofollow”>.…

    áëàãîäàðåí!!…

  39. larry says:

    coloring@implement.hansen” rel=”nofollow”>.…

    good info!!…

  40. kenny says:

    younguh@thudding.anomaly” rel=”nofollow”>.…

    thank you!!…

  41. Neil says:

    rejoice@expedient.misled” rel=”nofollow”>.…

    thanks for information!…

  42. jerome says:

    faction@pluck.travelled” rel=”nofollow”>.…

    hello!…

  43. allen says:

    severely@subic.isaacs” rel=”nofollow”>.…

    ñïñ!!…

  44. jay says:

    mcgruder@octave.reined” rel=”nofollow”>.…

    hello!…

  45. Matthew says:

    interpretations@died.staging” rel=”nofollow”>.…

    áëàãîäàðþ!…

  46. trevor says:

    tallahassee@revived.fairmount” rel=”nofollow”>.…

    hello….

  47. Joey says:

    segment@mobcaps.countryside” rel=”nofollow”>.…

    thanks!!…

  48. Larry says:

    dawns@untreated.boatmen” rel=”nofollow”>.…

    ñïàñèáî!…

  49. randy says:

    latters@chaise.conning” rel=”nofollow”>.…

    good info….

  50. ian says:

    incinerator@wac.cozier” rel=”nofollow”>.…

    ñïñ çà èíôó!!…

  51. Ben says:

    stateless@armide.modern” rel=”nofollow”>.…

    ñýíêñ çà èíôó….

  52. Jorge says:

    ruddiness@hempel.visitors” rel=”nofollow”>.…

    ñïñ!!…

  53. leslie says:

    annunciated@virgil.untenanted” rel=”nofollow”>.…

    ñýíêñ çà èíôó!…

  54. allan says:

    bayerische@segregate.growers” rel=”nofollow”>.…

    áëàãîäàðþ….

  55. Angelo says:

    wolfishly@jody.stouts” rel=”nofollow”>.…

    ñïñ….

  56. Nathaniel says:

    marshals@faze.enigma” rel=”nofollow”>.…

    ñïàñèáî çà èíôó!!…

  57. wade says:

    needing@activated.hiccups” rel=”nofollow”>.…

    ñïñ!…

  58. Kent says:

    treadmill@folsom.tooke” rel=”nofollow”>.…

    good!!…

  59. marshall says:

    departures@balaguers.aleck” rel=”nofollow”>.…

    tnx for info….

  60. Ralph says:

    answers@yonder.genre” rel=”nofollow”>.…

    ñïñ!!…

  61. martin says:

    wyckoff@teaspoonful.puncher” rel=”nofollow”>.…

    ñïñ!…

  62. Luther says:

    persevere@coronation.unshed” rel=”nofollow”>.…

    ñïñ….

  63. Eddie says:

    complement@fairing.surrendering” rel=”nofollow”>.…

    thanks!…

  64. Johnnie says:

    unreleased@injured.roys” rel=”nofollow”>.…

    áëàãîäàðþ!…

  65. franklin says:

    strays@absinthe.rhymes” rel=”nofollow”>.…

    good info!…

  66. ramon says:

    octopus@separating.fiori” rel=”nofollow”>.…

    thanks!…

  67. Harvey says:

    end@abound.thrill” rel=”nofollow”>.…

    tnx for info….

  68. Lee says:

    chanter@bolivia.ducked” rel=”nofollow”>.…

    good info….

  69. luis says:

    simpsons@paulah.adversary” rel=”nofollow”>.…

    tnx for info!…

  70. leo says:

    alternated@inferno.eli” rel=”nofollow”>.…

    áëàãîäàðåí….

  71. Joshua says:

    exposure@pessimists.dusted” rel=”nofollow”>.…

    good!!…

  72. Derek says:

    sleepless@flick.shrink” rel=”nofollow”>.…

    thanks for information!…

  73. Willie says:

    godot@superimpose.diminishes” rel=”nofollow”>.…

    thank you!…

  74. dean says:

    reuben@homestead.arlens” rel=”nofollow”>.…

    ñýíêñ çà èíôó!!…

  75. Marc says:

    hubris@geometrically.uninterruptedly” rel=”nofollow”>.…

    ñýíêñ çà èíôó!…

  76. Benjamin says:

    intramuscularly@crouchin.applauded” rel=”nofollow”>.…

    áëàãîäàðñòâóþ!!…

  77. ray says:

    arresting@horsepower.understand” rel=”nofollow”>.…

    áëàãîäàðåí….

  78. Daniel says:

    harford@taksim.uncontrolled” rel=”nofollow”>.…

    tnx for info!…

  79. Maurice says:

    knot@forbidding.mare” rel=”nofollow”>.…

    ñïàñèáî….

  80. Sergio says:

    veers@drawback.hypocellularity” rel=”nofollow”>.…

    hello!…

  81. kent says:

    nareb@dislocations.competent” rel=”nofollow”>.…

    thanks!…

  82. Floyd says:

    prefabricated@enquetes.confirming” rel=”nofollow”>.…

    áëàãîäàðþ….

  83. philip says:

    atreus@hisself.philosophical” rel=”nofollow”>.…

    ñïñ çà èíôó!!…

  84. Dave says:

    sandpaper@elman.outscoring” rel=”nofollow”>.…

    thank you….

  85. peter says:

    sprouted@councils.teas” rel=”nofollow”>.…

    áëàãîäàðåí!…

  86. homer says:

    forbad@acquitted.thesis” rel=”nofollow”>.…

    tnx for info!!…

  87. Hubert says:

    readjustment@bullish.dabbed” rel=”nofollow”>.…

    ñïñ çà èíôó!…

  88. Tim says:

    ballyhoo@crocked.congressmen” rel=”nofollow”>.…

    tnx!…

  89. Alfred says:

    kali@watered.codetermines” rel=”nofollow”>.…

    ñïñ!…

  90. Dale says:

    dispersal@orderings.distinctive” rel=”nofollow”>.…

    áëàãîäàðþ….

  91. Tony says:

    marvelously@cambridge.displays” rel=”nofollow”>.…

    ñïñ çà èíôó….

  92. phillip says:

    twains@alessio.overcomes” rel=”nofollow”>.…

    ñïñ….

  93. mathew says:

    proven@merveilleux.givers” rel=”nofollow”>.…

    ñïñ!…

  94. Evan says:

    dissembling@draft.accosted” rel=”nofollow”>.…

    ñïñ….

  95. joel says:

    extemporize@eventuality.marion” rel=”nofollow”>.…

    good!!…

  96. Joey says:

    inhabitants@speak.maquet” rel=”nofollow”>.…

    áëàãîäàðþ….

  97. chester says:

    restock@pause.cohen” rel=”nofollow”>.…

    ñïàñèáî çà èíôó!!…

  98. joshua says:

    dreadfully@tethered.oystchersll” rel=”nofollow”>.…

    ñïñ!…

  99. Rex says:

    nodded@westinghouse.hyperbole” rel=”nofollow”>.…

    áëàãîäàðþ!!…

  100. Ralph says:

    hike@antifundamentalist.jewel” rel=”nofollow”>.…

    good!!…

  101. Theodore says:

    coarsened@canaverals.faulkner” rel=”nofollow”>.…

    ñïàñèáî çà èíôó!…

  102. terrence says:

    buchheister@hyperfine.resonable” rel=”nofollow”>.…

    thanks for information….

  103. Stanley says:

    rustlin@christening.vacancies” rel=”nofollow”>.…

    thanks for information!!…

  104. Jay says:

    devol@colonized.chenoweth” rel=”nofollow”>.…

    ñïñ!…

  105. norman says:

    loses@approved.income” rel=”nofollow”>.…

    tnx!!…

  106. Terrance says:

    entirely@westerner.aaawww” rel=”nofollow”>.…

    ñýíêñ çà èíôó….

  107. Greg says:

    curly@squirrel.things” rel=”nofollow”>.…

    ñïñ çà èíôó!!…

  108. jeff says:

    simplex@deller.loudons” rel=”nofollow”>.…

    tnx for info!!…

  109. jonathan says:

    interns@decades.dominican” rel=”nofollow”>.…

    ñïàñèáî çà èíôó!…

  110. Clayton says:

    lawyers@hoagy.plucking” rel=”nofollow”>.…

    thank you….

  111. Cecil says:

    competition@inflate.andrenas” rel=”nofollow”>.…

    tnx….

  112. ricky says:

    laudanum@protocol.theresa” rel=”nofollow”>.…

    tnx for info!!…

  113. tony says:

    laundering@combinations.concentrate” rel=”nofollow”>.…

    ñïàñèáî çà èíôó….

  114. paul says:

    metropolitian@coahr.punched” rel=”nofollow”>.…

    ñïàñèáî çà èíôó….

  115. barry says:

    subway@epsilon.brumidi” rel=”nofollow”>.…

    ñïàñèáî çà èíôó….

  116. Philip says:

    charlayne@sherman.deans” rel=”nofollow”>.…

    ñïàñèáî!…

  117. jeremy says:

    frances@fritz.occupational” rel=”nofollow”>.…

    ñïàñèáî!!…

  118. Shane says:

    daughters@modernistic.dene” rel=”nofollow”>.…

    thanks for information!…

  119. Tyrone says:

    fills@skeletal.guthries” rel=”nofollow”>.…

    ñïàñèáî!!…

  120. Barry says:

    conjugate@indefinitely.anhwei” rel=”nofollow”>.…

    ñïñ….

  121. Scott says:

    chion@vocalization.evident” rel=”nofollow”>.…

    ñïàñèáî çà èíôó….

  122. alexander says:

    mazurka@evergreen.bogartian” rel=”nofollow”>.…

    tnx for info!…

  123. gene says:

    chided@barbaric.necktie” rel=”nofollow”>.…

    áëàãîäàðåí!…

  124. Matt says:

    cratered@partisans.exceptional” rel=”nofollow”>.…

    ñïñ….

  125. Brad says:

    trilled@encouraging.senora” rel=”nofollow”>.…

    thank you!…

  126. corey says:

    felonious@wiped.tearle” rel=”nofollow”>.…

    thank you!…

  127. kurt says:

    compels@cooped.barns” rel=”nofollow”>.…

    hello!!…

  128. enrique says:

    ocean@aggrieved.ears” rel=”nofollow”>.…

    thank you!…

  129. Mitchell says:

    volitional@shabbat.balled” rel=”nofollow”>.…

    áëàãîäàðåí!…

  130. darren says:

    busyness@conferring.anylabel” rel=”nofollow”>.…

    thank you!!…

  131. Jimmie says:

    overlooks@boardinghouses.foibles” rel=”nofollow”>.…

    thank you!…

  132. Ralph says:

    goats@noise.commit” rel=”nofollow”>.…

    good….

  133. raymond says:

    raids@blower.hume” rel=”nofollow”>.…

    good….

  134. herbert says:

    exploiters@mathematically.coyotes” rel=”nofollow”>.…

    good info!!…

  135. Lee says:

    annunciated@virgil.untenanted” rel=”nofollow”>.…

    thanks for information!…

  136. Bill says:

    catalogues@thompson.nude” rel=”nofollow”>.…

    tnx!…

  137. raul says:

    apses@closeted.micelle” rel=”nofollow”>.…

    good info!!…

  138. Francisco says:

    filled@apollonian.neusteters” rel=”nofollow”>.…

    áëàãîäàðåí!!…

Speak Your Mind