I retired at 65. Having taxed $ and investments in the portfolio will allow me to defer Social Security until 69 which more or less maxes out my and my wife's Social Security monthly benefit. Whether that works out or not depends on how long we live. It also defers withdrawing from my IRA's allowing them to (hopefully) grow as much as possible . I guess the downside to that is the RMD's will be higher but to me that's a good problem to have. If you're doing Roth Ira's that isn't a factor of course.

Having said all of that , I'd still maximize matches and tax deferred retirement savings ( be it traditional or Roth) first before funding your taxed savings /investments but also try to have tax paid assets available if you intend to retire "early" which is defined by what your'e looking at (59.5 for Ira's and 70+ for social security).

529b's were something else I funded on a tax deferred basis and I never had to pay taxes on that . I saved $100k there for each child and it wasn't enough for the younger one .

Question on your last point, if you will your tax deferred $ (401k or Ira) to a trust and said trust doesn't exceed the estate tax hurdle how do those $ ever get taxed? I guess maybe the trust is subject to rmd's and has to pay taxes on the rmd's? Does that sound right?

halfastros81 said:

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Question on your last point, if you will your tax deferred $ (401k or Ira) to a trust and said trust doesn't exceed the estate tax hurdle how do those $ ever get taxed? I guess maybe the trust is subject to rmd's and has to pay taxes on the rmd's? Does that sound right?

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I believe 401k / IRA have to be distributed within 10 years and all distributions are taxed as normal wage income.

If your heir is still working, that puts them into an even higher tax bracket, could easily be taxing distributions at 30%.

Brokerage account gets a step up in basis for the heir, and is taxed as capital gains when they withdraw using the new basis, and there is no distribution requirement. Much more flexibility and much more tax efficient for the heir.

ljtxag said:

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Thanks for the replies.

Prior to asking this question, I would have assumed that most on this board would have recommended maxing retirement accounts before doing anything else. But based on the replies so far, it sounds like there are some differing opinions on this. Something to think about…

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I think this, again, goes back to this board being an outlier. There are a lot of people on here who can or contemplate early retirement which is not the norm. In that scenario, there are other options to consider besides just maxing retirement accounts to the hilt.

I actually wish we had done more with taxable accounts than we did now that I'm retired pretty early.

But the trust lives on after I die and the Rmd's can be paid to the trust over the 10 years rather than to the heirs . Granted a tax return will have to be done for the trust and the trust beneficiaries will have to pay taxes on any distributions from the trust . That's the way I think it can work anyway.