Early Retirement - Financial Freedom (Investing, Tax Planning, Retirement Strategy, Personal Finance)

Here's Exactly How To Withdraw From A 401(k)/IRA To Live In Retirement

• Ari Taublieb, CFP®, MBA • Episode 282

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Feeling anxious about taking money from your retirement accounts? You’re not alone. That first withdrawal feels odd after decades of saving, but a clear process and tax plan turns uncertainty into confidence.

In this episode, Ari Taublieb, CFP®, breaks down how withdrawals actually move from investment accounts to your checking—and what the tax bite may look like.

Using a simple $100,000-per-year example for a married couple filing jointly, you’ll see illustrative ballpark math: in a no-income-tax state (e.g., Florida) the effective rate can land around ~8% (~$8,044), while a high-tax state (e.g., California) might be ~9.7% (~$9,683). That ~$2,000 gap often isn’t big enough to justify uprooting your life.

You’ll also learn a smarter way to “hold cash” for spending: keep withdrawal dollars intelligently invested while you spend. A $100,000 portfolio earning a modest 5% generates ~$5,000, which is roughly equivalent to one month of expenses at that rate, before fees, taxes, and market volatility. It’s not a guarantee, just math.

We’ll cover practical setups, like creating a dedicated travel fund while keeping core assets growing, and choosing a payout cadence (monthly, quarterly, or biweekly) that fits your comfort level. Whether you retire at 50, 60, or 70, the principles stay the same.

Ready to retire with more confidence? 

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Advisory services are offered through Root Financial Partners, LLC, an SEC-registered investment adviser. This content is intended for informational and educational purposes only and should not be considered personalized investment, tax, or legal advice. Viewing this content does not create an advisory relationship. We do not provide tax preparation or legal services. Always consult an investment, tax or legal professional regarding your specific situation.

The strategies, case studies, and examples discussed may not be suitable for everyone. They are hypothetical and for illustrative and educational purposes only. They do not reflect actual client results and are not guarantees of future performance. All investments involve risk, including the potential loss of principal.

Comments reflect the views of individual users and do not necessarily represent the views of Root Financial. They are not verified, may not be accurate, and should not be considered testimonials or endorsements

Participation in the Retirement Planning Academy or Early Retirement Academy does not create an advisory relationship with Root Financial. These programs are educational in nature and are not a substitute for personalized financial advice. Advisory services are offered only under a written agreement with Root Financial.

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Ari Taublieb, CFP ®, MBA is the Chief Growth Officer of Root Financial Partners and a Fiduciary Financial Planner specializing in helping clients retire early with confidence.


Speaker 1:

Thank you, milan, as always, as well as Michaela slash, Hannah, who will be taking this audio file. To upload this, milan, I will not be sharing my screen in this episode, so this is just for the audio file, so no need to share anything going on my screen. Most people have unnecessary worry when it comes to withdrawing money in retirement. Now, what I mean by that is I know why you're worried, because it's been the first time You've never actually taken money from your 401k or IRA to live in retirement. So right now, if you're in your 40s or 50s or 60s or even 30s, going, look, I'm going to retire early one day, I just don't know when. Well, the truth is, it's going to feel weird the first time and then it's going to be one of those things you're used to. You just want to make sure you're withdrawing from the right account and not paying more in taxes than you need to. I always like to say I'm all about being patriotic, just not to the point that you pay more in taxes than necessary. So, with that being said, let's look at an example and understand how you can withdraw income to minimize your tax bill in retirement in light of being recently married, as of August 15th. So, depending on when this episode is officially released, might be a few months, but I am officially married as of the recording and I'm going to go ahead and use a married filing jointly example, since that's what I'm going to get to do Very exciting stuff. That's what keeps me excited nowadays, guys. Now some of you are going to joke with me. Is that the only reason you got married? No, of course not, obviously, but it is a perk. So Now my wife Alice did say is this why we're doing it before the end of the year? I said no, no, no, nothing to do with that. And it's true, it did have nothing to do with that. But we're going to go through an example now so you can get some clarity. So I'm going to go ahead and read through an example. So, whether you're watching on YouTube or listening on the podcast, you'll have the same exact experience.

Speaker 1:

Now my name is Ari, I'm a certified financial planner, host of this podcast, the Early Retirement Podcast, and Chief Growth Officer here at Root, and I want to help you retire early with confidence. So there's not that little thing in the back of your head wondering oh, I should have thought about this or why did I miss that? This is all I do and I love it. So let's assume you're 60 years old in this example, and if you're not 60 right now, it doesn't matter. You can use the same logic if you retire at 50 or 70, but we're going to assume you're 60 and you want to withdraw $100,000 in retirement. Now, that's $100,000. I'm calling that after tax, adjusted for inflation. So if you actually want $100,000 to spend, you might need $120,000 or $135,000 or $140,000 if you actually want to net $100,000. In this example, we're just going to keep it simple and say you're withdrawing 100,000 in retirement, and I'm going to tell you what that actually means after taxes in this example.

Speaker 1:

Okay, so the way I want you to think about it is you're going to be pulling from a 401k or IRA, because that's most of you Now some of you. Because that's most of you, now some of you Sorry, milan slash, hannah and Michaela, I am sick, so it's taken me a few attempts to get through this episode. Now some of you do have a brokerage account, which is what I call a superhero account, which allows you to be more flexible with how you create income, which means you can play capital gains taxes, not play, but pay capital gains taxes instead of ordinary income, which is more tax efficient. So if we're looking in just from the perspective of someone who's 60, they've saved, invested, well, maybe they've got 1 million, one and a half million dollars and that's all in their 401k, all pre-tax. They want to start withdrawing $100k in retirement and they want to know their tax bill and they also want to know how do I do it? Do I do it monthly or quarterly or annually, and is there a difference? So that's what we're going to go through today.

Speaker 1:

Okay, now a big variable is where you live. If you live in California, like me, specifically Los Angeles I am in a high tax state. If you live in Florida, you're in a low or what some call no tax state. So what you want to make sure you're understanding and I see this too often is people will go oh yeah, I'm going to absolutely retire in Florida because I'm going to save so much in taxes when sometimes they find it's not as big of a saving as they thought and they'd rather stay with their friends and family and if they really knew the numbers, they might not move to Florida. So I'm not saying don't, I'm not saying do it. I'm saying understand the math and let that guide your decision.

Speaker 1:

So if we're just looking at the math here, if you're taking $100,000, meaning that's what you're withdrawing from your 401k what you have to do first, quite simply, is you have to sell something. If your money's invested, you cannot go ahead and withdraw it. It will not allow you to do so. So if you have a Vanguard or Fidelity or Schwab account, you need to make sure that that's money freed up. So now money is sold. Now, when you do that, there's no tax implications. That's what's nice about having your money in a 401k. You pay taxes when you take the money out. When you put the money in, you get a deduction. No-transcript. You're not having to pay taxes on those gains. You're just paying taxes on whatever you withdraw out, because, as the IRS sees it, there's all money you got a deduction for. So if you put $1 and it grew to $2 million, and if you had $1 and it grew to $10, you're paying taxes on whatever you withdraw out, based off that year.

Speaker 1:

So let's look at an example. If you're taking $100,000 out and you decide to take the standard deduction, which is $29,200, that means $70,800 is what's called your taxable income. That's what you're taxed on. So the way it works here in the US is we have a marginal system. So the first 10% excuse me, the first $23,200 is taxed at 10%, which is $2,320. And then the additional amounts from $23,200 to $94,300, that is taxed at 12%, so that's a total of $47,600 that's being taxed and that's at 12%, so that's $5,724, which means if you live in Florida where there's no state tax, you're looking at $8,044 as your total federal tax bill on your $100,000. Because once again, you get the standard deduction. Then you're taxed a portion at 10% and a portion at 12%, which means in the marginal bracket, meaning how much your highest dollars are being taxed at. That's 12%. But your blended rate is actually 8%, because 8,044 is your total tax bill. So if we were to take that 8,044 and divide that by 100,000, you're right about 8%. Which means if you live in Florida and you're withdrawing $100,000, 8% that's your tax bill. That's what you can expect in retirement.

Speaker 1:

Now, everything I just said there it's the exact same for California, except we have to add state taxes. For California, the first $20,824 is taxed at 1%, so that's $208. The next $20,824 to $49,368, that's taxed at 2%, so that's $571. And then additional amounts from $49,368 to $70,800 is taxed at 4%, or $86060, for a total of $1,639. So your marginal bracket, if you live in California, would be 16%, meaning any additional dollars you take out will be federally taxed at 12% and federal and state taxes would be 4%.

Speaker 1:

Same thing for Florida. Your marginal bracket is 12%. That does not change. The difference is what's your blended, what's your actual tax that you're paying. That's what you want to know.

Speaker 1:

So in Florida, if you're going to live there, you're going to have to pay tax of $8,044. So you need to make sure that you understand. Okay, if I'm taking $100,000, I don't really have $100,000 to spend. I have $92,000 to spend. In California, if you're taking $100,000 from your 401k, you're going to pay a blended rate of 9.7%, about $9,683. So, right there, you're right close to paying about $10,000. We're just going to keep it simple and say you have $90,000 to spend.

Speaker 1:

So there are certain people that would say, wow, $90,000 versus $92,000, that's enough of a difference that every single year, yeah, I'm absolutely going to move Other people go. Well, that's not enough. It's good for me to know. Now the reality is I kept today very simple, because you need to add in Social Security, you need to add in part time work Is someone going to have an inheritance rental income? So I've kept it very simple. But so often people get these little things confused. So this is more of an episode, so that it just alleviates some anxiety.

Speaker 1:

What I hope you also know is there's not a perfect way to do it. I have certain clients that they want to have a year's worth of income set aside for traveling. So pretend they go all right, yep, I'm gonna withdraw 100,000 so that in California I end up with 90,000 after taxes. They might say I wanna put 30 away and that's just gonna be my travel fund. So if I wanna travel this year, I can go do it and then the additional amounts.

Speaker 1:

So once again, we start with 90 after taxes. Now we have decided to put 30 into a travel account. That means 60 is available to us, but pretend they still need more so that they can live for this year. Well, 60, they can decide to have that in their account and just have it paid to them every month. But if they just keep that in their checking account and spend whatever they want every month, that's not growing for them. So what most of my clients prefer is they want to certainly take money out so that if they want to travel they can, meaning they don't have to worry about if markets are doing well or not, that that's dictating their trip.

Speaker 1:

But they do want to make sure that their money is growing for them efficiently. So most of the time what we'll do is we'll have a certain portion of their portfolio in what we call war chest investments. These are more conservative, less likely to grow, but they're still growing. So if they're getting 3%, 4%, 5%, 6% growth every single month, that is making a big difference. Because if you were to keep $100,000, let's just say in your account and just withdraw every month from it but not have the money grow, at the end of the year you would have taken about $8,000 a month and you would haven't made any money but you would have lived. Versus if you keep $100,000 in your investment account at Schwab or Vanguard or Fidelity and you decide to invest it and get, let's say, 5% growth, that's $5,000. That is maybe getting close to one month worth of retirement living. So all you have to do is understand how to invest well in your account and you're essentially getting close to maybe one month's worth of living expenses. So it's one of those things that it is based on comfort.

Speaker 1:

But most clients who want to optimize are electing to leave the majority in their account, and we have clients that go. I'd rather have it be paid quarterly. We have other clients that go. I'd rather have it be paid every two weeks, because that's how I'm used to living and I just want to maintain that. So, for those that are clients of root, they just inform us what is their preference and then we make sure their investments are set up to create that.

Speaker 1:

So that's it for this episode. Just want to go over how you actually withdraw income in retirement. As you can see, it is not rocket science, but you want to make sure you're not missing a few easy things that otherwise could yield big value over time. So, keeping it simple for today, hopefully you enjoyed this episode. If you are enjoying the content, please do like and subscribe on YouTube and then, of course, please rate and review. If you're listening on the podcast app helps more people find the show. If you want to work with Root, this is what we do All the tax, all the estate, all the healthcare, all the withdrawal strategies. This is what we specialize in. If you cannot tell, I'm a little bit sick today, but I never want to miss a week, so I am always trying to record as most efficiently as I can. So I've not missed a week in years, literally. So I'm going to keep going and that is it for this episode. See you next time.