Planned

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Ability to further specify how to drawdown from accounts

It would be useful to further specify how to drawdown from accounts. In addition to the order, specifying the ratios to drawdown from two (or more) accounts would allow us to model different scenarios for tax efficiency, among other things.

91 votes

Tagged as Suggestion

Suggested 10 February 2022 by user Hugues

Moved into Planned 29 January 2023

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  • 10 February 2022 Hugues suggested this task

  • 11 February 2022 Kyle Nolan approved this task

  • avatar

    Within each account type, being able to specify specific account order would be useful as well.

    23 October 2022
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    Also, for tax purposes, it would be nice to be able to “end an account” and force a full withdrawal on a specific year. Once fully withdrawn, I would expect any excess funds to be funneled into other active accounts based on my cash flow priorities.

    This is what I’m trying to solve for: I have an account with an investment fund that appreciates at Y% for the next 5 years. At the end of 5 years the investment fund sells all assets and pays back my investment along with any gains, for which I’ll owe capital gains taxes for that year’s taxes.

    23 October 2022
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    This is an interesting topic that I’ve heard various arguments about. Most planners suggest taxable first, then tax deferred, then Roth and HSAs, I think. But I’ve also read that proportionate drawdowns actually lead to lower tax liabilities over the long run.

    03 December 2022
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    Yes, these rules of thumb are probably good guidelines. The really cool thing about building a plan in PL, is you can discover the optimal order for YOUR plan. And once we get account-level ordering then we get even more optimal.

    04 December 2022
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    I would like to be able to balance withdrawals from my IRA and my wife’s 401K in proportion to each of our total assets. Example: pull 60% of our living expenses from my IRA, pull 40% from my wife’s 401K. Currently it is only pulling from my IRA until she hits RMD’s.

    13 December 2022
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    Yes, this is a great suggestion! I’ve already encountered limitations with the current drawdown approach which only allows users to specify the priority by account type. This is a problem for me with a 401k and deferred comp plan, both are tax deferred accounts so PL sets the same priority for both, but I want to prioritize deferred comp, then taxable, then 401k - but can’t do this. It would also be helpful to have specific rules for each account. For example, draw from 401k until the end of the 12% tax bracket is reached, then draw from taxable. Currently I don’t think this is possible, but it has significant tax implications.

    18 January 2023
  • 22 January 2023 Kyle Nolan moved this task into In progress

  • avatar

    The way I plan to model my drawdowns, and specifically which account types I plan to draw from, starts with a target tax rate. For some people, zero or as close to zero as possible will be the right answer for how much they want to pay in taxes, and in 2023 you can get pretty close to zero with income up to 117,150 by mixing regular income with gap gains under that threshold. For my wife and I, we have decided that zero isn’t the right target for us, and our goal is to not pay more than a 15% federal income tax. That gives us a budget of 117,150 in 2023 of regular income, and everything above that would need to be long term capital gains income taxed at 15% or Roth distributions. Further, instead of the goal being that taxes are as low as possible in a given year, we are trying to keep our taxes below the 15% threshold in future years as well, so if there was still room in the 12% bracket for a given year, we would do Roth conversions to max out the 12% bracket for that year. Ideally we would be able to preserve a large majority of the 10% and 12% brackets each year for rollovers while we live off of capital gain income.

    23 January 2023
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    I would like to be able to specify a draw down for an account over a certain number of years disregarding draw down order. Simply “Draw down account X over Y years, beginning at age/milestone”

    25 January 2023
  • 29 January 2023 Kyle Nolan moved this task into Planned

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    This is fairly necessary to be able to model drawdowns for superannuation in Australia. Even if I’d like to draw down other accounts first, there’s a minimum amount that needs to be taken out of super every year.

    10 February 2023
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    I love all of these ideas and would add a simple item of being able to set a minimum balance for an investment account like you can the cash accounts, so the tool would only drawdown the account to the set min level and then move on to the next account in the drawdown order.

    20 February 2023
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    For UK based investors it might be useful to be able to draw up to the tax personal allowance from Pensions - could be implement as a ‘Withdraw x amount from y account’ then being able to use ISAs which don’t attract Income Tax is a pretty comment Withdrawal Order.

    11 April 2023
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    I’d like to optimize drawdowns for tax efficiency (US perspective) so it would include tapping tax deferred accounts (e.g. Ira) to fill the tax bracket before post-tax retirement account (e.g. Roth). Something similar to Fig. 4 https://www.troweprice.com/content/dam/iinvestor/planning-and-research/t-rowe-price-insights/retirement-and-planning/pdfs/tax-efficient-withdrawal-strategies.pdf sourced from Strategy 2 in https://www.troweprice.com/personal-investing/resources/insights/a-tax-savvy-approach-help-make-most-out-of-retirement-income.html

    Alternatively, a simpler method of proportional withdrawals could be useful for comparison as shown in the second bar chart https://www.fidelity.com/viewpoints/retirement/tax-savvy-withdrawals#:~:text=As%20a%20starting%20point%2C%20Fidelity,you%20be%20taking%20that%20money%3F

    28 April 2023
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    one usecase I have could be if I have 2 529s - 1 for each child. And basically both of them could be like “spend from 529 account 1 then 529 account 2”

    27 June 2023
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    Also if modelling jointly, you would want the ability to say that both spouses/partners should withdraw up to the personal allowance each year (from their own tax-deferred accounts) and then the rest of the drawdown order would apply

    21 August 2023
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    I wouldn’t have cancelled my trial if ProjectionLab had this feature. But without it, the tax efficiency of withdrawals was so terrible that the entire plan was meaningless.

    27 August 2023
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    Agree, that’s pretty much what my plan is too. Maximize the 12/15% tax bracket and try to avoid huge RMDs later. It’s quite the balancing act.

    05 September 2023
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    It might not work for every situation, but keep in mind you can identify which account to use to fund an expense; the flip side of telling an account to fund a specific expense.

    If needed to change things over time / amount you could break an expense into two cards as needed to change the timing of when/how much is pulled from which account(s).

    I’ll only note that “Living Expense” doesn’t seem to have that option (other’s do), but you could recreate any expense with a “Custom Expense”, delete the other, and you’ll have the option to fund from a specific account

    05 September 2023
  • 09 September 2023
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    Can an update on this feature be provided from an admin/engineer? Similar to others, I also wouldn’t have cancelled my trial if PL had this feature built out. It’s a very important tax planning strategy tool and an update here would be appreciated.

    20 December 2023
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    I’m thinking something like the cash-flow priority system but for drawdown… with the caveat that this feature seems to mean different things to different people, so some work will need to be done to narrow it down to a concrete set of inputs.

    I am looking forward to adding more granular drawdown controls at some point. For now, I’m still building PL as a solo dev, and the roadmap is growing pretty sizable; so it’s always a delicate balancing/prioritization act to figure out the best sequence to tackle things.

    It might also be worth noting that for those who simply want to order specific accounts within the larger buckets already available in Plan Settings > Drawdown, I think the account order should already be deterministic and take its cue from the order of accounts in the Accounts section of each plan.

    20 December 2023
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    Kyle – thanks for providing a quick response, and candidly didn’t realize this was a solo dev effort… very impressive to say the least and totally get needing to prioritize efforts based on community feedback. Re: this specific thread, yes I think a priority withdrawal system is the ask here with the goal being to minimize taxes or stay below a specific tax bracket given a preset goal (e.g., a set retirement spending level). Specifially, I’d point to Mark Figley’s and Ken Hicky’s prior posts and the links that were provided.

    Thanks again, and look forward to the continued evolution of PL.

    22 December 2023
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    A drawdown order by account (rather than account type) would provide a certain level of adjustability for users with different accounts invested in different asset classes and therefore different growth/dividend assumptions.

    If you want to get more complex, there used to be a retirement planning tool which basically did only this, and charged $600/year (see it at https://www.retireeincome.com/ but note it is no longer available). That tool was purchased by T Rowe Price last year and may have been incorporated into the advice seen at Ken Hickey’s links, above.

    14 January
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    Yes to pretty much everyone’s comments. The task I am currently working on is balancing the drawdown of retirement accounts - how much comes from mine vs. my wife’s. Currently, PL picks one and draws it to zero before moving on to the other spouse’s account.

    20 March
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    For me the ability to draw down from tax deferred accounts up to specific tax bracket is by far the number one missing feature. that would make the withdrawal strategies so much more optimal

    20 May
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    This looks like a subset of the Optimizer story: https://changemap.co/projectifi/projectifi/task/5229-optimizers/ and it’s hard to upvote one item without upvoting a ton of work. If you pick up Optimizers it would make sense to prioritize them according to most valuable to least. I’ll drop a comment in that feature as I think some parsing is in order.

    Wednesday