Do not confuse spending with distributions with taxation. There are several different but related issues going on here.Philosophically, I do not associate withdrawal with spending needs.
A) The spending is from 2 to 3 years of expense in cash buffer.
B) The refilling of the cash buffer is from the taxable dividend and interest income. And, from the Roth account.
C) The tax management is from Roth conversion and taxable gain dependent on the amount of taxes I want to pay each year.
(A), (B), and (C) are independent from each other.
One is taxation of distributions from a tax deferred retirement account, with Roth Conversions, or RMDs. In general you want to avoid high ordinary marginal tax rates, so may strive to keep your tax rate under 13%, or 25%, or 33% for years. Distributions can be taxable or not taxable, and do not have to be spent.
A second is spending from accounts based on account location. Distributions from Roth accounts are taxed less, more tax efficient. Ordinary brokerage accounts are a combination of ordinary interest, dividends, qualified dividends, long term capital gains, short term capital gains ... It can be good to have spendable assets in any location, and even spend from a Roth account even if you still have money in other locations, but spending from an ordinary taxable account is more common.
A third is asset location. This can be changed tax-free inside tax advantaged accounts. Cash would not usually be in a Roth account, and significant spending from one location may cause rebalancing in other locations.
A fourth overall issue is secondary taxes like IRMAA, Net Investment Income Tax, ACA Partial Tax Credit, taxation of Social Security benefits, and other credits and deductions related to MAGI. Distributions from some locations may be MAGI tax free.
A fifth issue is that spending is not flat over time, but may rise with travel, new houses/cars/boats, or medical like Long Term Care. However there may be methods like distributions from tax deferred accounts being mostly tax-free based on itemized deductions. Spending on charities can be tax-free.
I probably left off some more interrelated issues, and my attempt to color code may not have helped.
Statistics: Posted by VanGar+Goyle — Sat Jul 06, 2024 4:20 am