Constructing Tax Efficient Withdrawal Strategies for Retirees with Traditional 401(k)/IRAs, Roth 401(k)/IRAs, and Taxable Accounts

41 Pages Posted: 17 May 2019

See all articles by James DiLellio

James DiLellio

Pepperdine University - Graziadio School of Business and Management

Daniel N Ostrov

Santa Clara University

Date Written: August 8, 2018

Abstract

We construct an algorithm for United States retirees that computes individualized tax-efficient annual withdrawals from IRAs/401(k)s, Roth IRAs/Roth 401(k)s, and taxable accounts. Our algorithm applies a new approach that generates an individualized strategy that results in consistent improvements over non-individualized withdrawal strategies currently advocated by financial institutions and academics. Among other results, we quantifiably demonstrate why retirees should avoid, not seek, dividend producing stocks in their taxable accounts. Our model, which can work to optimize either portfolio longevity or the bequest to an heir, accommodates many salient tax code features, including dividends, different taxable lots, conversions, and required minimum distributions.

Keywords: retirement income, tax efficiency, optimization

JEL Classification: G11, H21

Suggested Citation

DiLellio, James and Ostrov, Daniel N, Constructing Tax Efficient Withdrawal Strategies for Retirees with Traditional 401(k)/IRAs, Roth 401(k)/IRAs, and Taxable Accounts (August 8, 2018). Available at SSRN: https://ssrn.com/abstract=3374590 or http://dx.doi.org/10.2139/ssrn.3374590

James DiLellio

Pepperdine University - Graziadio School of Business and Management ( email )

Malibu, CA
United States

Daniel N Ostrov (Contact Author)

Santa Clara University ( email )

500 El Camino Real
Santa Clara, CA 95053
United States
4085544551 (Phone)
4085544551 (Fax)

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