TITLE

Tax-Efficient Retirement Withdrawal Planning Using a Linear Programming Model

AUTHOR(S)
Coopersmith, Lewis W.; Sumutka, Alan R.
PUB. DATE
September 2011
SOURCE
Journal of Financial Planning;Sep2011, Vol. 24 Issue 9, p50
SOURCE TYPE
Academic Journal
DOC. TYPE
Article
ABSTRACT
A common rule (CR) for withdrawing retirement savings is to withdraw taxable savings before tax-deferred savings, but this strategy can inflate required minimum distributions (RMDs) and reduce tax efficiency and wealth. However, tax-efficient (TE) withdrawal schemes can determine withdrawals that maximize the final total account balance over a retirement horizon. We consider identical scenarios (for example, initial wealth, living expenses excluding federal taxes, Social Security, tax deductions), but use different withdrawal methods (TE using a linear programming spreadsheet model versus CR) to taxes while satisfying RMDs over a 25-year planning horizon (to age 90). We compare the final total account balances for various combinations of taxable rates of return (ROR), tax- deferred ROR, initial taxable savings, and itemized deductions. Results show that TE models can significantly outperform CR when taxable ROR is greater than tax-deferred ROR, initial taxable wealth is greater than 10 percent of total retirement wealth, and itemized deductions are greater than the standard deduction. For a realistic combination of these conditions, total remaining account balances for TE are shown to be more than 16 determine withdrawals and federal percent higher than CR.
ACCESSION #
65761543

 

Related Articles

  • How to limit Uncle Sam's share of retirement BENEFIT$. Farber, Lawrence // Medical Economics;8/9/2002, Vol. 79 Issue 15, p50 

    Offers tips on how to limit a spouse's share of retirement benefits. Provision of a lump-sum payout offers to spouses; Extension of the tax-deferred growth of pension and investment of return funds; Management of return of investments. INSET: Figuring required distributions.

  • Beating the Social Security ceiling on earnings. Berko, Malcolm // San Diego Business Journal;3/18/96 Small Business Extra, Vol. 17 Issue 12, p16A 

    Presents advice from the author on a method of beating the Social Security earnings ceiling in relation to a woman who was forced into retirement and is losing benefits. Method to avoid Social Security taxation; Purchased shares of a special dividend paying perferred stock; How dividends are...

  • Albertson's ruling is interesting but demands caution. Fossett, Peter A. // National Underwriter / Life & Health Financial Services;3/14/94, Vol. 98 Issue 11, p14 

    Reports on a court ruling regarding tax deductions for interest credited on deferred compensation plan. Focus on the case of Albertson's Inc. versus Commissioners; Deferred compensations as indebtedness; Deduction timing restrictions.

  • Application of FICA Tax to Deferred Compensation--Part 2. Schneider, Paul J. // Journal of Financial Service Professionals;May2014, Vol. 68 Issue 3, p20 

    This is the second of a two-part column on the subject of how and when nonqualified deferred compensation (NQDC) becomes subject to Social Security (FICA) taxation. This Part 2 discusses the methodology for determining the "amount deferred" for purposes of the special timing rule. In particular,...

  • Should Prospective Retirees Forgo Tax-Deductible Contributions to Retirement Plans to Reduce Required Minimum Distribution Payments? Toolson, Richard B.; Craig, Caroline K. // Journal of Financial Service Professionals;Mar2010, Vol. 64 Issue 2, p44 

    Given the enormous size of projected federal budget deficits, it is likely that federal income tax rates will rise, and perhaps dramatically so, over the next several years in order to reduce or at least slow down the growth rate in U.S. debt. Many taxpayers may consequently find themselves...

  • Gifting IRC Section 403(b) Assets. Smilowitz, Mitchell J.; Miller, Milton; Bregman, William; Straus, Alan J.; Marcus, David R. // CPA Journal;Jun99, Vol. 69 Issue 6, p54 

    Presents ways to donate assets from a 403(b) personal financial plan. Naming of the institution as beneficiary of the tax-deferred annuities account; Commencement of distributions to make a charitable contribution; Distributions of the assets to a charitable trust.

  • `Interest' accrued under deferred comp plan is not deductible.  // Practical Accountant;Feb95, Vol. 28 Issue 2, p11 

    Reports on the ruling of the US Internal Revenue Service concerning tax deductibility of interest under deferred compensation agreements (DCA). Albertson's Inc.'s case.

  • ESTIMATES OF TAX-DEFERRED RETIREMENT SAVINGS BEHAVIOR. Collins, Julie H.; Wyckoff, James H. // National Tax Journal;Dec88, Vol. 41 Issue 4, p561 

    This study examines the tax-favored retirement savings behavior of non-self-employed households. Our estimates suggest that perceptions of the household's marginal tax rate are of limited importance in the decision to invest in tax-deferred savings instruments. However, the household's income is...

  • Finally, a Warning About Annuities. Geer, Carolyn T. // Fortune;7/5/1999, Vol. 140 Issue 1, p212 

    Focuses on variable annuities in light of May 1999 National Association of Securities Dealers (NASD) warnings to members about their legal responsibility to clients. Cost to customers of the tax-deferred investment; Reasons for the number of people who invest all or part of their retirement...

Share

Read the Article

Courtesy of VIRGINIA BEACH PUBLIC LIBRARY AND SYSTEM

Sorry, but this item is not currently available from your library.

Try another library?
Sign out of this library

Other Topics