Retirement Depletion Strategy: Roth Bucket First Out?

In retirement, depleting after-tax, pre-tax, then Roth assets is common, but unique circumstances may lead to different strategies.

### Retirement Bucket Strategy: LIFO vs. Unique Models
* 💰  The traditional approach to retirement withdrawals often follows a **Last In, First Out (LIFO)** strategy, where after-tax accounts are depleted first, followed by pre-tax accounts, and Roth accounts last.
* 🔄  Some experts suggest unique models, such as bridging a pre-59.5 retirement gap by **pulling contributions from the Roth bucket**, due to the ability to **access Roth 401(k) contributions tax-free**.
* 🔍  The key concern with this strategy is potentially **depleting tax-free growth assets prematurely**, which can be **highly valuable for long-term wealth accumulation**.
* 🧙‍♂️  Brian and Bo's analogy likens this dilemma to Gollum's obsession with the "**precious**" in Lord of the Rings, emphasizing the importance of **protecting tax-free growth assets**.
* 📊  The decision on which bucket to pull from first in retirement is highly individualized, depending on factors such as **timeline, unique circumstances, and available assets**.
* 📺  A new show is in the works to explore different retirement decumulation strategies in depth, including the implications of **pulling from different retirement buckets**.
* 📈  The upcoming show aims to provide **detailed insights on the impact of withdrawing from after-tax, pre-tax, and Roth accounts during retirement**, offering **practical guidance for viewers**.
* 🤔  While there is no one-size-fits-all answer, considering a **LIFO approach** can serve as a useful framework for making **informed decisions about retirement withdrawals**.

[Music] All right, Matthew's question says the guys always say first in first out when referring to the buckets to pull from in retirement. Is it okay to pull contributions from the Roth bucket to bridge a pre-595 retirement gap? Well, Matthew, I think, I don't know that we say first in first out when it comes to, to be honest. I was like, I, we always talk about LIFO, which is a lot of times last in first out. So when you think about the way that when it comes to our wealth building journey, and if you follow the financial Brian, do you have a thing you can hold up? Do you have want something you can shake at him? Yeah, I got, I was looking for, oh my goodness, my main one, you took it on the book tour. I took it on the book tour, and we have it who knows where that you get the. It doesn't have the same sound because it's I've got it doesn't sound as good. Oh well, if you want, if you want.

your free copy. You can go to money.com resources. If you're following the financial order of operations, what happens for most people is you end up starting with a Roth IRA at some point. I mean you do the employer match, but generally when you start saving, you put money in a Roth IRA. So that goes in first. Well, then you get a job and you start doing your 401k or your 403b. And then that starts. And then you get to step seven, you do hyper accumulation. Now you start doing after-tax. So you went Roth and then pre-tax or employer-sponsored plan, and then you went after-tax. Well, what's really interesting is when it comes time to retire, when it comes to financial independence, and you start de-accumulating. In practice, what most often happens is we go LIFO. You actually, in most circumstances, in our experience, you begin to pull out of your after-tax bucket first. And then you begin to deplete your pre-tax bucket. And the last bucket that you begin to deplete is your Roth bucket. So often we

don't say that you go five foot in retirement. You go lifo in retirement, but there are people out there that have created some unique models and other things where they're saying 'cause you can take even Roth 401ks roll them out and you can chisel into that principle tax-free. So, a lot of people are saying, Man, that's a great opportunity to create a bridge account for retirement. Yep, here's the problem I – and look, it doesn't mean that it's wrong, it's actually a very cool little technical thing that you can do to get tax tax-free access to assets. The problem I have with it – and this is where I turn into Gollum from Lord of the Rings – is I think about how valuable, oh my precious, tax-free growth is and 'cause these are Financial mutants, people who are making really good decisions with your money, the reality is you're probably not leaving this planet with zero. They just – I mean, if you're good with money, part of your problem with the complexity is the money starts

growing upon itself, but then you ask yourself, well, maybe I should have not saved as much. Well, no, because you don't know which dollars are the ones that actually got you to the critical mass where this thing starts just growing upon itself beyond your wildest imagination. So you have to still put in the effort in those first 20 years 'cause success is not assured. And then, believe me, if you look at the stats, you'll see the majority of people are horrible at that part of it. But when you get to having assets, you're going to look at those Roth assets and you're like, man, the government doesn't let me put but this much in per year. And it's not that huge of a number. And then they only let me put this in if my income's under this threshold. And you're like, you want to go burn through those assets first while I still might have 20 to 30 years for that money to compound on top of itself. Plus, if you make my loved ones the beneficiary on these, they get a 10-year

stretch, and if they have special needs or some other, you know, unique thing that was written into the tax law, they actually get to stretch this for their lifespan. You start thinking about Roth money a little differently, and it's not my idol like gum made the Rings, the idol, but it is one of those things where I can't help but think about my precious tax-free growth, my precious. I love it. Here's something. Can I tell something? May if you're not subscribed to the Channel, I want you to subscribe right now because there is something exciting coming, and I don't normally do these kinds of teasers. We're actually working on a show right now that'll be coming out in the next few weeks, or if you're watching this, perhaps it's already come out, where we're going to walk through some like early retirement strategies, like decumulation strategies, where we're going to dive into this very thing. Okay, what does it look like if I pull from my

after-tax bucket. What does it look like if I pull from the Roth? What's it look like if I pull from my 401k? What are all these different things? It's a really fun show that's going to go super deep into the weeds. Well, the only way you're going to know about it when that show comes out is if you're subscribed right now. So please subscribe to the channel so that as we release that kind of stuff, you can know about it. Uh, but Matthew, I think in practice, so, uh, FIFO, LIFO, all that stuff, that's academic. In practice, personal finances, personal, because we have some people when they get to retirement, for whatever reason, we might have to pull out a Roth in the early few years, or we might have folks who we do Roth conversion strategies, or we have folks that don't have any after-tax assets. So, there is not a tried-and-true answer to the one way to do it well because it depends on your unique circumstances, your unique timeline, your unique factors. But I think approaching it from a LIFO

standpoint is going to at least give you an idea of a way to think through it because a Gollum.

Is It Okay to Use Roth Funds to Bridge a Pre-59.5 Retirement Gap?

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The Strategy of Bucket-Pulling in Retirement Planning

Financial planning for retirement involves the strategy of bucket-pulling, which often follows a "last in, first out" approach.

This means that in practice, retirement withdrawals typically start with the after-tax bucket, then the pre-tax bucket, and finally the Roth bucket.

The financial order of operations usually begins with a Roth IRA, followed by a 401k or 403b, and then after-tax contributions, with the Roth bucket being the last to be depleted in retirement.

To learn more about this strategy, one can access free resources on money.

Some people are exploring the option of using Roth 401ks and creating a bridge account for tax-free access to assets in retirement.

The concern is that this strategy may not fully take advantage of the potential for tax-free growth, and it's important to make good financial decisions in the early years to allow assets to grow.

There is also a limitation on the amount that can be contributed to Roth assets, leading to a dilemma of when to use these assets in retirement.

The Importance of Tax Planning for Retirement

Roth accounts allow for tax-free growth and offer unique withdrawal options based on individual circumstances.

A new show is in the works, focusing on early retirement and decumulation strategies, providing in-depth insights into different retirement income sources.

The approach to retirement tax planning varies for each person based on their specific financial situation and needs, with no one-size-fits-all solution.

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