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What Should I Do With My IRA Once I Retire?


When you retire, you make the final shift from the era of wealth accumulation to wealth management.

This is a big deal. Managing your IRA in retirement is an important project. You want to strike the balance between a newfound need for security, since you can no longer wait out downturns and replace losses, and a continued need for growth, since you will need this money for decades to come. Every household will have a different answer for how they want to manage their money, but here are a few things to consider as you approach retirement.

To create a retirement strategy for your own goals, consider speaking with a financial advisor.

Examine a Roth Conversion

First things first, it’s worth doing the math for a Roth IRA conversion.

At any time, including when you retire, you can roll over your tax-advantaged retirement accounts from a pre-tax account (such as a 401(k) or IRA) into a post-tax Roth IRA. While there are tax implications to doing this, there’s no cap on the money that you can roll over. 

The advantage to this is that you can partially or entirely eliminate income taxes from your retirement portfolio. The disadvantage is that you will pay full income taxes on all of the money you roll over in the year you do so. And, while your Roth IRA will then continue to grow tax-free, the money you paid on that conversion could also have continued to grow. So there is both a present cost and an opportunity cost.

If a Roth conversion works, it can be a significant long-term advantage. Just make sure that it will, in fact, work. Note than if you choose to roll your money over to a Roth, you may have to leave the money for five years before withdrawing to avoid penalties. A financial advisor can discuss the rules of retirement accounts with you.

Rebalance for Risk

Portfolio balance refers to the percent of assets make up the different sections of your retirement portfolio, such as stocks, funds and bonds.

In your working life, your portfolio will be significantly balanced in favor of equities. Many advisors recommend that you hold between 60% and 80% of your retirement portfolio in assets like stocks and index funds while accumulating wealth. 

In retirement, your risk profile changes. You no longer have new income with which to replace losses and, arguably more importantly, you no longer have the time to wait out downturns. Even if the market dips, you will still need to cash out assets for your income. This argues for a balance toward security. But at the same time, you will likely need this money for decades to come. Inflation and costs will grow over time, and ideally you want your money to grow at a faster rate. This means you will still need some growth-oriented assets on hand.

So as you retire, rebalance your IRA around these needs. On average, in your retirement you want your IRA to hold between 40% and 70% low-risk assets like bonds. Create a specific plan that meets your needs for inflation and wealth management, while anticipating your needs for risk management. 

Balance Your Portfolios and RMDs

Your IRA may be just one of several retirement portfolios that you manage. For example, you may have a 401(k) fund or a fully-taxed portfolio that you have used to build wealth. 

Households that have multiple portfolios often build a plan to use one at a time so that their other portfolios can maintain the highest possible returns. (Think of it, essentially, as an inverse snowball method.) This is a good approach, but it’s important to have a strategy for which portfolios will you withdraw from, when and why.

If you do this, make sure to keep an eye on required minimum distributions (RMDs). At age 73 the IRS will require you to take a minimum amount per year from each of your pre-tax accounts, including your IRA. You can manage this money as you want once you take it out, but you will need to withdraw it. 

Talk to a financial advisor about the best ways to structure your RMDs.

Manage Your Taxes

Finally, as you plan for your IRA, make sure to account for taxes. Unless you make a Roth conversion, you will pay income taxes on the money that you regularly withdraw from your IRA. This can catch many retirees by surprise as, without fully realizing it, they plan to live on the full amount that they plan on withdrawing. 

Calculate the taxes that you will pay on your IRA withdrawals so that you can plan on living off that income, rather than the hypothetical pre-tax income. This will reflect your true financial position in retirement, and it’s worth understanding. 

If you need help planning your taxes and retirement, get matched with a financial advisor today.

The Bottom Line

As you enter retirement, it’s important to make a plan for your various retirement accounts. Look at rebalancing your assets, consider a Roth conversion and make a long-term plan for your taxes and lifestyle. And above all else, do not forget that money management doesn’t end just because work did. 

Retirement Tax Management Tips

  • Managing your taxes in retirement is essential. You will pay taxes on just about every source of income except for Roth portfolios, including Social Security, so make sure that you maximize every advantage that you can get. 
  • A financial advisor can help you build a comprehensive retirement plan. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.

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