Qu For All You Planners

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May 8, 2006 1:13 pm

What are your thoughts on this question.  Client with over one millon invested is now retiring.  They want to take an income that will be insignificant relative to total holdings.  "around 3.6% of total account balances."  But they want to take it all from their nonqualified accounts which amounts to 18% of those account values.  This will  deplete those accounts in fewer than 8 years- my guess.


For all of you who fancy themselfs planners my question is which is better.  Deplete the non qualified accounts and then shift to the qualified stuff or take an even 3.4% accross the board and make all the accounts last longer.  Taxes will be higher now if we use the qualified money which is taxed of course as income v's capital gains on the other accounts.   THis was the clients issue and he is trying to put off taxes on qualified money as long as possible.    


Acc summary:  1.3 million,  285k nonqualified, roughly 1 million qualified.  


Have at it guys and girls. 

May 8, 2006 1:35 pm

bring up the IRD taxes that will be due on the qualified money at their death.  better to die with NQ assets (to get the stepup at death, and they are not in a taxable estate), than to die with Qualified.  Of course the problem with IRD could be taken care of by stretching the IRA's to the beneficiaries rather than taking a lump sum distribution.  I dont like the idea of only have 100% qualified for all retirement assets.  if they need additional liquidity during a year, and their only option is qualified, you may be avoiding some potential tax effeciency in distribution planning.  thier only option would be 100% taxable income. 


dont know if that helps or just brings up additional insight.... 

May 8, 2006 1:40 pm

That sounds like a reasonable strategy to me.  I have a client with zero basis stock and RMDs.  We are taking the RMD, but gradually depleting the zero basis stock for the rest, realizing that his tax bill will probably be larger in future years, but taking advantage of the low cap gains rates we have today, and tax-deferred growth in the IRA.  If your client had some serious estate tax issues (which at 1.3 mil they don't), I'd have different thoughts, given how IRAs are taxed in estates.