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Treasured Social Butterfly

Re: IRA Distributions

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Message 1 of 12

We've gone thru this before; I have no desire to pay taxes on money sitting in an IRA, to convert it. If I drop dead tomorrow, my estate all goes to charity, and they wouldn't have to pay tax at all on the IRA, as far as I understand.


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Valued Social Butterfly

Re: IRA Distributions

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Message 2 of 12

Astrea don't know about inherited IRAs, but you really should look into converting some of yours to a Roth. I never expected I would reach my way past MRD age, but I'm glad I did and still do conversions. Converting is really easy and carefully chosen withdrawal  amounts are worth paying a small tax on now .

Karl

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Treasured Social Butterfly

Re: IRA Distributions

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Message 3 of 12

This is my first visit to what used to be "my" group, since the change in platform .. so I'm sorry there hasn't been any posting to the discussions lately!

 

This is too complicated for me. Besides my own IRA, I inherited Mom's, when she died, and had to immediately start taking distributions from it the next year .. although I was only 51 at the time. I'm a long way from having to take RMDs from my own IRA, so I haven't thought much about it .. other than to keep it growing!


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Silver Conversationalist

Re: IRA Distributions

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myRA (via Wikipedia): http://en.wikipedia.org/wiki/MyRA

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Silver Conversationalist

Re: IRA Distributions

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403(b) (via Wikipedia): http://en.wikipedia.org/wiki/403(b)

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Silver Conversationalist

Re: IRA Distributions

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Rollovers as Business Start-Ups (via Wikipedia): http://en.wikipedia.org/wiki/Rollovers_as_Business_Start-Ups

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Silver Conversationalist

Re: IRA Distributions

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Self-directed IRA (via Wikipedia): http://en.wikipedia.org/wiki/Self-Directed_IRA

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Silver Conversationalist

Re: IRA Distributions

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Message 8 of 12

Roth 401(k) (via Wikipedia): http://en.wikipedia.org/wiki/Roth_401(k)

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Valued Social Butterfly

Re: IRA Distributions

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Message 9 of 12

Yes,  I realize only the contribution amounts,  not earnings,  can be withdrawn as non-deductible dollars from traditional IRA.  My plan was to take about $12,000 this way,  plus another $5,000 from a taxable account,   to pay off the home loan and free up $200 a month more in income.

As you say:

"of course this is based on the current laws in place - who knows how that might change in the future."

 

Exactly!  I don't like the idea of making major decisions based on what might be the tax code,  or acts of Congress,  7 years from now (the time mandatory RMDs come for me)  I have seen things in my lifetime,  both in the financial markets and in Congress,  that I never thought possible.  Therefore,  my reluctance to act now to trigger tax.  (Also, did establish a Roth account as soon as they came in and contributed up until I stopped working and could no longer contribute, so I have a good mix of both.)

 

My real question,  though, has nothing to do with Roth conversions.  It is this: 

In order to raise immediate income (when going out an getting a p/t job is not possible)  what is recommended path when only way to increase monthly income is to get rid of (mortgage) debt?

a)  take $$ from non-deduct. contributions in Traditional IRA

b)  take $$ from regular IRA and probably owe some tax

c)  take $$ from taxable MM account that is earning next to nothing, but reducing this "bucket" level to the point it may not last until the year after I turn 70&half)

d) take $$ from taxable mutual fund GinnieMae account and probably owe small tax in l.t. cap gain e) take $$ from Roth account (no heirs to think about to let account grow w/out making any withdrawals before death)   

Ideas?

 

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Valued Social Butterfly

Re: IRA Distributions

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Message 10 of 12

drawpoker wrote:

Seems no one has added anything to the existing thread on this so I thought I would start a new one.

Has anyone taken a distribution from non-deductible amounts prior to turning 70 & 1/2?   Reason I ask -  altho I am loathe to touch any of my IRA accounts prior to when I absolutely have to with RMDs and I have carefully constructed various  taxable accounts of "buckets" to draw upon until that time - I do not like facing paying the increased costs of health insurance when I turn 65 in 2 months.  (Due to our state joining in the Medicaid expansion under Obamacare I qualifed for Medicaid Jan 1 this year since only income,  not assets,  were counted.  That relieved me of having to pay for my private Blue Cross plan anymore)

Now,  between Part B,  Part D and the added cost of a good Medigap plan so I can sleep well at night ,  I am back up looking at close to $300 a month in premiums.  I can increase my income to cover this new expense,  but only after paying off a small, fixed home equity loan at 4.2%.  By taking the $ from the non-deduct. portion of traditional IRA I see no tax consequences.  Am I right?  

Also,  I have a good mix of bond  and equity mutual funds among the IRA accounts so I could take what I need strictly from the bonds and not lose any momentum from this and future bull markets.

Would appreciate any opinion or advice from people here who have a portion of their traditional IRAs in non-deductible amounts.    ???????


YOUR QUESTION:  By taking the $ from the non-deduct. portion of traditional IRA I see no tax consequences.  Am I right? 

 

Only your contribution to the non-deductible IRA is NOT taxed - any earnings will be taxed.  There is a tax computation formula as to how this has to be figured when you take a distribution from it, since the distribution will be figured as part non-deductible contribution (no tax since tax has already been paid on it) and part earnings (taxed since earning have been tax deferred).

 

karl is right that the wise thing to do would be to start converting to a ROTH IRA - and you control the amount which you can do up until you are 70.5.  By you controling the amount of the conversion from either or both IRA accounts (deductible and non-deductible), you can control the tax amount that you will owe on the convertion.  Best to start this process sooner rather than later.

 

By doing this, you will not only have a nice ROTH account where earnings grow tax free but you will also reduce the amount of the Required Minimum Distribution (IRA) that you will be force to take and pay taxes on when you turn 70.5 years old.

 

P.S.  of course this is based on the current laws in place - who knows how that might change in the future.

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