Planning Your Self-Directed IRA Withdrawals as You Get Closer to Retirement

Estimated reading time: 3 minutes(Last Updated On: December 10, 2018)

Self-Directed IRA WithdrawalsThe process of saving for retirement, making regular contributions to your self-directed IRA, and choosing the best investments for your account is one that goes on for many years, and requires careful consideration and planning. You also need to put an appropriate amount of effort into planning how you will take distributions from your account as you near your target retirement age.

What Are Your Retirement Expenses? The first question to ask yourself is how much you anticipate needing once you begin retirement. This will depend in no small part on how you define “retirement.” Some individuals still have the traditional notion of retirement as completely stopping work and living a life of leisure. But an increasing number plan to work at least part-time in to their golden years (whether by choice or by financial necessity), and beyond.

Take some time to write out the specifics of your desired retirement lifestyle. If you plan to downsize, move beyond the mere notion of doing so and put numbers down on paper. You can then use this budget to prepare an initial schedule for how you’ll begin to draw down funds from your self-directed IRA.

What Are Your Health Care Needs? One important part of your retirement budget is likely to be health care. In fact, healthcare sometimes represents the single biggest expense for many retirees. If you try to come up with a number for this anticipated expense, be honest with yourself on your current level of health, and your family health history. You may be able to save on future health-care expenses by making lifestyle changes immediately and improving your health outlook.

What Other Savings and Investments Do You Have? Chances are that your self directed IRA won’t be the only asset you have available to fund your retirement. How much do you have in taxable investment accounts, other retirement accounts, savings accounts, and assets such as your home? How much do you anticipate receiving each month in Social Security?

When planning your retirement, you may wish to prioritize withdrawals from certain accounts over others. For example, self-directed IRAs will continue to grow tax-deferred or tax-free basis, so you may wish to fund your retirement primarily or exclusively from taxable investment accounts before you take distributions from your IRA.

The Dangers of Not Having a Plan. Planning withdrawals from your self-directed IRA is important because you want to minimize the chance of outliving your retirement fund. You may wish to start conservatively in taking distributions from your self-directed IRA, but then readjust your plan as necessary, potentially even from year to year.

Required Minimum Distributions. If your self-directed IRA is set up as a traditional account, then you’ll need to take into account the prospect of being subject to required minimum distributions. These rules provide that once you reach age 70 1/2, you must begin taking minimum distributions each year from a traditional IRA. This may not be an issue, but if you would prefer to continue to leave funds in your self-directed IRA later in life, then you may wish to consider converting to a Roth account. Contact Quest Trust Company for more details.

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