Why You Should Take (Tax-free) 401k Income Before Social Security & RMDs

(don’t forget to checkout the video of this blog too)

So you have a large balance of taxable retirement money (as most people approaching retirement do)…

Should you start taking money out early in retirement⁉️

Or should you continue to defer those taxes as long as you can⁉️

If you’re looking to create a tax-free retirement or at least minimize taxes in retirement…

You’re likely going to want to start taking retirement income from your 401k BEFORE you are forced too.

And that’s what RMDs are…

Required Minimum Distributions (RMDs) force you to start liquidating your taxable retirement assets so that you can pay Uncle Sam.

If you start taking income before you’re forced to, you have more control of your taxes in retirement (i.e. you are paying taxes on your terms).

That’s because you can strategically take taxable money out tax-free using your standard deduction (or any other deductions you have in retirement).

You can also choose to take more money out and it will still end up coming out of taxable retirement accounts in low marginal tax brackets (meaning you can take a significant amount of taxable money out at a very low, taxable rate).

Doing this early in retirement helps prevent a huge, unmanageable, taxable income that you are forced to take out.

….and (obviously) pay taxes on…

Also, by delaying your social security you’re allowing for FULL USAGE of your standard deduction.

This means that you can take MORE taxable money out tax-free.

Once you start collecting social security, you are bound by a new set of tax rules…

These are the provisional income limits for social security.

This is what determines how much of your social security will be considered taxable income.

If you can keep your taxable income low enough you can collect your social security completely tax-free.

This is why it’s so important to leverage the timing of your retirement income AND the current tax brackets…

So you can maximize your tax-free income as best as possible in retirement.

Let’s chat 💬😎