Suggestions

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Enhance the Drawdowns to be only up to certain amounts or tax brackets

I want to model a drawdowns from a blend of Roth IRA withdrawals and Taxable Investments / Brokerage Accounts (with estimated long term capital gains) to be able to control my MAGI/AGI to stay under limits for tax brackets, or 0% long term capital gains, or % of the Federal Poverty Limit to qualify for Affordable Care Act Premium Tax Credits. Specifying only an order for Drawdowns doesn’t allow for this.

56 votes

Tagged as Suggestion

Suggested 21 March 2023 by user Al

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  • 21 March 2023 Al suggested this task

  • 21 March 2023 Kyle Nolan approved this task

  • avatar
    Grigoriy Vaysman

    This would be extremely useful not only to stay under limits for specific tax credits, but to generally optimize withdrawals over time by smoothing tax brackets over life of the plan

    04 February 2024
  • avatar
    Garrett Ivy

    This would be huge.

    27 May
  • avatar
    The Roper's

    I agree this is what I am trying to work out right now.

    09 September
  • avatar
    JeffS

    I agree this would be extremely useful. The current drawdown implementation means that one account/tax-type is guaranteed to drain completely to zero first, followed by the next account/tax-type, etc. In most cases, this isn’t going to be the optimal solution, particularly once people reach age 59 1/2 and can start withdrawing from tax-advantaged accounts without penalty (but even earlier ages than that would be applicable for HSAs and/or if someone wants to take early withdrawals).

    One way to implement this in PL would be for each Drawdown category (tax-deferred, taxable, tax-tree/roth, etc.) on the Drawdown Order page to have a way to specify “max withdrawals” per year. PL could provide a similar UI to how the Bond Allocation per account allows for customizing Bond/Stock ratio over time.

    An even fancier (and far more powerful/useful) implementation that ProjectionLab could do would be to automatically calculate and apply an optimized drawdown strategy. Here is a link to an academic technical paper (with a ton of formulas) from a couple of university professors. They propose an approach for combining and/or capping withdrawals from different tax-types to optimize overall portfolio longevity (even including a variable in the equations to factor in whether the goal is to die-with-zero, or leave a bequest to heirs, or some combination of both):

    “Constructing Tax Efficient Withdrawal Strategies for Retirees with Traditional 401(k)/IRAs, Roth 401(k)/IRAs, and Taxable Accounts” https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3374590

    It seems like the formulas from this paper could be fairly easy to integrate into PL.

    The same author also has a few other papers on similar topics (including roth conversion strategies, with formulas) here: https://etfmathguy.com

    14 September
  • avatar
    Jae

    This would be an incredible feature to help target minimum tax obligations. To be able to use a mix of Taxable, pre-tax, and roth as the source to hit a target over the life of the plan! Please do add this.

    16 September
  • avatar
    Cynthia S

    This would be a great addition! I think it would combine well with adding ability to set drawdown by account instead of type.

    19 September
  • avatar
    Gary Kline

    It would help to minimize taxes to be able to withdraw from tax deferred up to a certain tax bracket then withdraw from Roth accounts if more is needed.

    25 October