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Personal Investments • SORR “Revelation” and Questions

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Yesterday was the first time I tried to make a withdrawal from my 401k. I’m not retired yet (planning for next year), but I thought I would withdraw some money for my property taxes. HomerJ made a post a while ago where he was “skimming” the top of his gains and moving to a conservative fund once he hit his number. Technically it’s rebalancing as many pointed out, but once you hit your number, you can move over some money made in gains to use for spending you didn’t plan for. I liked that idea - to use only on occasion, so when my equities fund had enough gains to pay my taxes (over the balance I projected I needed for retirement), I moved it to VMRXX (VG Federal MM) within my 401k. Almost felt like free money - like my taxes were being paid for “free”.

So when I called yesterday to make the withdraw (I wasn’t able to do it online), the rep told me I could not make the withdraw from just VMRXX, rather it had to be equally withdrawn across all three funds (stable, Blackrock US Stock Index, and VMRXX).

This never occurred to me - I truly thought I “solved” the SORR issue by having almost 10 years in stable value and the rest in Blackrock within my 401k. I thought I would simply withdraw from stable or equities, depending on the market.

So now that I have to take an equal distribution from each fund, I no longer have much confidence about SORR. My questions:

The rep told me I could do two things (1) move all my money to stable, make the withdraw, and then move to the desired AA again, or (2), move the 401k to an IRA because once the money is in an IRA, you can withdraw from any fund - there are no restrictions. Is this true? If so, that seems like it might solve the issue.

Is there a “threshold” BHs use for when the market dips where you are in SORR territory? So if the market is down next year when I retire, how far down does it have to go when it really becomes an issue? 10% correction, 20% recession? And is there a time threshold as well? Meaning, once you get past a certain time period of making withdrawals, it doesn’t matter as much?

Finally, should I withdraw more money when the market is up/stable (within my tax bracket), and just put the extra money in a safe after-tax account - so I can use that money if the market drops - rather than withdrawing from equities when the market is down? I’m thinking this could be a way to build up an after tax fund.

I appreciate your feedback.

Statistics: Posted by ER2023 — Sat Aug 03, 2024 11:10 am



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