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Drawing Down Retirement Accounts

Many retirees will have a taxable investment portfolio as well as money in a tax-deferred account such as an IRA. In that situation, you should draw down your taxable account first so that your IRA can remain intact as long as possible. The longer your IRA remains untapped, the more tax-deferred accumulation you’ll enjoy.

Suppose, for example, you want to take a $20,000 first-year withdrawal from your total portfolio. That $20,000 can come from your taxable account. The next year, if inflation is 3 percent, you might withdraw $20,600 from your taxable account to maintain your spending power. And so on, each year.

After you reach age 70 1/2, you will have to take minimum withdrawals from your IRA. The IRS tables require a withdrawal of nearly 4 percent in the first year, for most people. On a $250,000 IRA, for example, that would be around $10,000. You could take that $10,000 from your IRA and the balance of your spending money from your taxable account, as long as it has funds. All the while, your IRA can keep growing, tax-deferred, to provide funds as you grow older.