Never paying tax on tax deferred money up to 100k?

[finalpsychyear]

I always hear about this but other than those who have multiple real estate rentals or businesses that give passive income forever unless sold that's all I see this being applicable to.


If i retire at 50-55 years old and I know that I plan to live comfortably off of 100k per year by selling assets in my tax deferred account I essentially pay 0 tax (standard deduction included) on money that I deferred during my peak earning years? If i wanted to withdraw 200k i would only pay 15k on that addtional 100k? Once that is liquidated I move on to my taxable account doing the same thing 100k selloffs per year and essentially paying 0 tax since i have no other income. So roth iras's come into play along with assets such as tax free municipalities that i believe you can push your sold assets for the year above 100k but those won't be counted in your taxable income?

I don't think most know about how much less tax they will pay down the road.


2019 capital gains tax brackets for MFJ:

Capital Gains Tax: What It Is, 2023-2024 Rates - NerdWallet

Long- or short-term capital gains tax rates can apply to assets or investments sold for a profit. The length of ownership before selling helps determine which tax rates apply.

www.nerdwallet.com

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[FutureInternist]

Someone a lot more knowledgeable than myself may wish to chime in, but my understanding was that $ in 403b, 457 etc is considered ordinary income (upon distribution), and hence does NOT qualify for the capital gains tax rate but rather the standard income tax rate.

 

[tartesos]

I always hear about this but other than those who have multiple real estate rentals or businesses that give passive income forever unless sold that's all I see this being applicable to.


If i retire at 50-55 years old and I know that I plan to live comfortably off of 100k per year by selling assets in my tax deferred account I essentially pay 0 tax (standard deduction included) on money that I deferred during my peak earning years? If i wanted to withdraw 200k i would only pay 15k on that addtional 100k? Once that is liquidated I move on to my taxable account doing the same thing 100k selloffs per year and essentially paying 0 tax since i have no other income. So roth iras's come into play along with assets such as tax free municipalities that i believe you can push your sold assets for the year above 100k but those won't be counted in your taxable income?

I don't think most know about how much less tax they will pay down the road.


2019 capital gains tax brackets for MFJ:

Capital Gains Tax: What It Is, 2023-2024 Rates - NerdWallet

Long- or short-term capital gains tax rates can apply to assets or investments sold for a profit. The length of ownership before selling helps determine which tax rates apply.

www.nerdwallet.com

Missed that part?

 

[tartesos]

I always hear about this but other than those who have multiple real estate rentals or businesses that give passive income forever unless sold that's all I see this being applicable to.


If i retire at 50-55 years old and I know that I plan to live comfortably off of 100k per year by selling assets in my tax deferred account I essentially pay 0 tax (standard deduction included) on money that I deferred during my peak earning years? If i wanted to withdraw 200k i would only pay 15k on that addtional 100k? Once that is liquidated I move on to my taxable account doing the same thing 100k selloffs per year and essentially paying 0 tax since i have no other income. So roth iras's come into play along with assets such as tax free municipalities that i believe you can push your sold assets for the year above 100k but those won't be counted in your taxable income?

I don't think most know about how much less tax they will pay down the road.


2019 capital gains tax brackets for MFJ:

Capital Gains Tax: What It Is, 2023-2024 Rates - NerdWallet

Long- or short-term capital gains tax rates can apply to assets or investments sold for a profit. The length of ownership before selling helps determine which tax rates apply.

www.nerdwallet.com

View attachment 280073

Missed that part?

 

[Mman]

If i retire at 50-55 years old and I know that I plan to live comfortably off of 100k per year by selling assets in my tax deferred account I essentially pay 0 tax (standard deduction included) on money that I deferred during my peak earning years? If i wanted to withdraw 200k i would only pay 15k on that addtional 100k? Once that is liquidated I move on to my taxable account doing the same thing 100k selloffs per year and essentially paying 0 tax since i have no other income. So roth iras's come into play along with assets such as tax free municipalities that i believe you can push your sold assets for the year above 100k but those won't be counted in your taxable income?

what do you mean by "tax deferred account"? Because for something like a 401K, you can't take any withdrawals at age 50 or 55 because if you do you will pay ordinary tax rates plus a penalty.

most FIRE assumptions are that you will be living off taxable account money until you are old enough to withdraw from retirement accounts without penalty

 

[finalpsychyear]

what do you mean by "tax deferred account"? Because for something like a 401K, you can't take any withdrawals at age 50 or 55 because if you do you will pay ordinary tax rates plus a penalty.

most FIRE assumptions are that you will be living off taxable account money until you are old enough to withdraw from retirement accounts without penalty

Tax deferred Account: 401k, trad ira, etc

I had to do some extensive reading on this topic as it is a bit tricky and that website above does not really give a full answer. Your spot on about the penalty. The only way around it is if someone retired at say 50 years old they would get around the early penalty and withdrawal rules by doing roth conversion ladder (401k--> Trad Ira-->Roth Ira) but you can't touch them for 5 years so the 50 year old couldn't use it till 55 so you need 5 years of living expenses to do this and it doesn't matter what age you start at but of course your going to have to dip into cash reserves/taxable to pay for the living expenses and the tax on the roth conversions. You'd have to do this till you hit 59.5.

Also, I read capital gains applies only to the taxable investment account. So if you were officially retired and withdraw 100k from a 401k/Trad IRA you would pay whatever regular income tax on that depending on what bracket you fall in based on how much you took out and of course whatever other passive income you may have at that time (rental, business, etc.

Right now if you were 100% retired and if you had no passive income and took out 100k from trad ira, uncle sam gets 12.5k. Compare that to if you didn't do a deferral in your peak years you nearly paid 50k tax (4x more) on that same 100k if you let it be taxed by Uncle Sam in your prime working years at the highest taxable rates. So paying 0 tax dollars on 100k withdrawal is only possible from a taxable account or roth ira aside from some tax harvesting strategies but that is the bulk of what i read.