Let’s say it’s time to retire and I have a $2,000,000 retirement fund. $1,000,000 was accumulated in a Roth IRA and the other $1,000,000 was accumulated in a traditional pre-tax 401(k).
Let’s say I withdraw $50,000 from each account as my income in one year. I understand that all my Roth IRA money is tax free, however, I am wondering if the amount I withdraw from my Roth IRA counts towards what tax bracket my other $50,000 would be taxed under.
For example, let’s use the new 2018 tax brackets (I’m married filing jointly), and for the sake of the exercise let’s say I did not take the standard deduction but also did not itemize anything.
0 to 19050 = 10% 19050 to 77400 = 12%
Would the $50,000 from the traditional pre-tax 401(k) be taxed at 12% because the $50,000 from the Roth IRA put me in that bracket (even though I was not taxed on that)? Or would it follow taxation as if the $50,000 from the pre-tax 401(k) were my only income, so the first $19050 at 10% and then the rest at 12%?
Second question. Is there a best way (best way defined as minimizing the tax bill and maximizing future gains) to decide how much to withdraw from a Roth IRA vs a pre-tax 401(k) if you have about the same amount in both? Thanks in advance.