Lifetime Planner IDEA: Allow User to Change Account Order of Withdrawal Sequence in LTP

Scooterlam

Lifetime Planner IDEA:  Allow User to Change Account Order of Withdrawal Sequence



Studying alternative investment account withdrawal strategies in LTP may be useful in exploring more tax-efficient approaches to draw-down.  Changes in withdrawal strategy,  can improve end-of-plan balances and yearly cashflows for overall plan success.   But currently, it is not possible to tell LTP to reorder and prioritize alternative account withdrawal sequences other than a program determined, fixed order.   

This idea allows the user to explore different account withdrawal sequences or strategies in LTP, such as:

1.   A user-customized account withdrawal sequence and timing, or

2.   An "auto" optimization feature to find the "best" account withdrawal sequence, or

3.   A pro-rata strategy where account type withdrawals are done in parallel

additionally, 

4.  Incorporation of Account Specific Use IDEA
.
5.  Incorporation of Roth Conversion IDEA

Please Consider Voting for this IDEA.  Add your comments and thoughts as well.

THE ISSUE

Currently, Quicken LTP fixes the order of account withdrawals during the decumulation stage of the retirement plan.   From my prior look into this, the current LTP order of withdrawal is:

1.   RMDs (after LTP RMD age), then

2.   Taxable Accounts, then

3.  Tax Free Accounts (ex. ROTH), then

4.   Tax Deferred Accounts (ex. IRA, 401K)

There may be some nuances to this ordering, such as once RMDs are started at age 70 (in LTP)...unless the Tax Deferred account is exhausted, LTP will no longer draw from the taxable account despite a cash buildup. This can result in a tax inefficient result.

THE CHANGE

Depending upon the user's account types and balances in their portfolio (and situation) there may be more tax-efficient approaches to account withdrawal order.  But currently, it is not possible to tell LTP to reorder and prioritize account withdrawals other than the default order, described above.  So....


1.   Allow the user to change their order of withdrawals for any permutation of LTP investment accounts types.   Include both sequential and pro-rata withdrawal strategies.   Ensure that RMDs are always taken first to avoid the 50% tax penalty.


2.   In addition to reordering accounts in #1 , add an "auto-optimize" feature to allow Quicken to automatically test all account type permutations for maximum plan ending balance and other user defined criteria (ie.  minimum yearly account balance)


3.  Allow the user to, at any time,  return or reset LTP default order of withdrawals.


4.  Leverage current "What-if" dialog to study order of withdrawal scenarios.  Produce Graph / Tabular results to illustrate benefits of the selected "alternative order of withdrawal" strategy vs. current strategy.  Image 1.


5.   Document in HELP the current default order of withdrawals along with this new feature.

MAKING THIS FEATURE BETTER

In order to better assess the effectiveness of different "order of withdrawal" strategies, IRA, 401k and ROTH account types must have their basic tax characteristics defined/maintained in LTP.   There are several additional IDEA posts on this subject.    Does LTP need to have a "highly precise" tax model for this feature to aid in decision making?  TBD.

Note, this is a pretty common feature in modern professional planning software but also increasingly popular in consumer level planners where tax models for different account types are basic.  Nonetheless, a useful feature to allow a user to balance "conventional practice" against ones own situation.

Please Consider Voting for this IDEA.  Add your comments and thoughts as well.

HELPFUL EDUCATION LINKS:

Fidelity:  Tax-savvy Withdrawals in Retirement

Kitces:  Tax-Efficient Spending Strategies From Retirement Portfolios

Financial Planning Association Study





IMAGE 1  -  "What if" dialog

JoelVP

Excellent suggestion. Would greatly enhance the value of LTP and give makers of Quicken a boost in product quality.

dave hulett

I think this is a nessesary feature. 15 years ago I developed my own rather complicated spreadsheet because the planner at that time made some inflexible assumptions. I use the LTP as a reality check on my own calulations and it has improved significantly over the years. I retired 10 years ago and now the LTP is off significantly because of the inflexibility of scheduling IRA withdrawals. It's a very needed feature

Rocket J Squirrel

I need this feature because I am taking RMDs from an inherited IRA. Quicken knows nothing about those and there's no way to tell it.

gazer

I also think this is a necasory feature.

pdq

Lots of drawdown customization would be great. However, in the short-term, I'd be happy if they would just change the default order to be: 1st) AfterTax; 2nd) BeforeTax; 3rd) Roth instead of the current order which is 1st) AfterTax; 2nd) Roth; 3rd) BeforeTax.

For many reasons, no one with substantial BeforeTax balances should drawdown Roth ahead of BeforeTax — that saves the BeforeTax accounts until the end when RMD's will be highest and also the potential widow/widower tax penalty is most likely.

Chris_QPW

@pdq Totally agree, you have stated the number one reason the order is wrong for me.