Ask Terry Questions Withdrawing funds from IRA

Withdrawing funds from IRA

By Terry Savage on August 13, 2018 | Financial Planning / Retirement

You answered my question about taking an additional 13M from our traditional IRA and putting it in to a Roth (answer was Nope). As I mentioned , our only income is SS, RMD, dividends and interest which will amount to about 9M which gives us 15M of unused personal deductions, If we withdrew say 13M from the IRA’s I assume that it would be treated as ordinary income. We put the RMD money into a taxable Schwab investment account and we pay no income tax because the personal deduction covers it, so wouldn’t the additional 13M be covered by the deduction as well. Once again, thank you !

Terry Says

Well, you could be making an expensive mistake. If you add the distribution income from your traditional IRA on top of your other income, part of your SS benefits will become taxable!
Here’s the rule:

• file a joint return, and you and your spouse have a combined income* that is
between $32,000 and $44,000, you may have to pay income tax on up to 50 percent of your benefits.
More than $44,000, up to 85 percent of your benefits may be taxable.

And you’re making a mistake anyway in thinking that it will be “easier” for your wife if everything is in one account. She will inherit your IRA ify ou name her as beneficiary – and she can roll it into her own or keep it as a separate inherited IRA. And it can keep growing tax-deferred. If she is at a place like Fidelity (as custodian of your IRA) they will help her through this process.

You don’t mention whether you have any heirs, adult children whom you trust. But if so, they should be brought into this process. I’m not sure what kind of “trust” you have – but I hope it’s an up-to-date revocable living trust. And I hope you have established a relationship with a trusted advisor. And I hope you have healthcare powers of attorney and living wills.

Your preoccupation with this strange conversion scheme should not blind you to your real needs!

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