Ari Taublieb, CFP®, MBA

Best Account to Withdraw Money From to Retire Early

Have a burning question about early retirement, taxes, or anything else we discuss on our podcast? We want to hear from you!

Are you considering early retirement and wondering which account to tap into first? A certified financial planner (CFP®) can help you navigate this decision, but the best option depends on individual circumstances.

Thinking Like a Business

For a successful retirement, visualize your portfolio as a business. It should experience steady growth, and withdrawals shouldn’t hinder that progress. A common pitfall is withdrawing a fixed sum annually, regardless of market conditions. This can be risky, as a market downturn could deplete your savings quicker than expected.

Utilizing a Brokerage Account

A CFP® might recommend using a brokerage account to fund your lifestyle until you reach 59 ½ years old. At that point, you can access your IRA penalty-free. However, keep in mind that these withdrawals will be taxed.

Tax Advantages of Roth Conversions

Roth conversions offer another strategy. This involves moving money from a traditional IRA to a Roth IRA. Roth IRAs boast different tax treatment. With a Roth IRA, you pay taxes upfront on contributions, but all qualified withdrawals in retirement are tax-free! There are income limits for Roth IRA contributions, so be sure to check your eligibility.

Finding the Optimal Withdrawal Account

The ideal withdrawal strategy hinges on several factors. These include the size of your capital gains and pre-tax account balances, your projected tax brackets in retirement, and the duration you expect to be in a specific tax bracket.

Key Takeaways

Here’s a summary of the key points:

  • A well-defined withdrawal strategy is essential before retiring early.
  • Avoid the fixed-withdrawal approach, as it can be detrimental.
  • A brokerage account can be a viable income source until you reach 59 ½.
  • IRA withdrawals are an option after 59 ½, but they’ll be taxed.
  • Roth conversions can be a tax-saving strategy for retirement.
  • The best withdrawal account depends on your unique financial situation.

By considering these points, you can make informed decisions about your early retirement and ensure your nest egg lasts throughout your golden years.

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