OT HOW TO DRAW FUNDS FROM AN IRA

lenray

Well-known Member
Have a small IRA at 100K and am at the age where I have to start drawing the funds out. This IRA is an Annuity.
Take it all at once and pay the tax hit now....

The paper metioned the---Single life and 10 year certain option.................

Don't really need the funds , but have to take out by law 70 1/2 is going to be the age in 2015.
Thanks for any advice...
 
You can roll some IRA's into tax free municipal bonds and defer some of the tax hit. You also can distribute the fund straight through to your heirs and this bypasses some taxes but not much.

Annuities as your IRA investment are not the best tax wise at the withdrawal time.
 
Hello lenray,

You only need to take out the required minimum.
Taking it all at one time ,may not be a good tax
move. Have you got a notice of the requirement? If you have, it will state what the minimum is, again, that amount is all you are required to take out annually, once a month or once a year,

Guido.
 
I just had the same situation and also don't need the money right now. My advisor said instead of taking the money you can put it into a Roth IRA. It (supposedly) grows tax free and if it's still there when you pass it can grow for your kids without taxes on gains. Also he advised keeping annual income in the 15% bracket so can't take out too much per year, you have to pay income tax on what you take out and transfer, but not FICA (FICA was paid when the money went into the IRA)
 
Best advice, talk to a financial adviser for all your options. Some munies are triple tax free, but you may still have an income taxes to pay. If you take all at once, it may bump you to a higher tax bracket. Get professional advice.
 
IRS rules certainly arn't in my wheelhouse so I will speak from experience,which of course is different for each of us.
I paid no tax on what I deposited over the years thinking I was only deferring inome tax until i was in a lower bracket. I have drawn lumps of $11k,$17k and $15k in 3 seprate years without paying one dime tax on withdrawls,SS and small passive realestate investment return. Up to that time I was lead to believe taxes would be due on withdrawels,PERIOD. Not so as long as your combined net income isn't above a certain level. Actually,the biggest concurn is to avoid triggering taxes on SS. My guess looking at your $100k fund,unless you earn $20k or so in addition to SS,you will owe nothing as the result of drawing minium amt required. Be carful of "tap dances",if one isn't legal,you will not be told for a few years and by then penalties and intrest will have snowballed. Makes no difference wherther you withdraw monthly or a lump,it's figured on annual amount. If none of my ramblings up to this point are believable or make sense,here's somthing very important to understand. Many,many honest taxpayer over pay every year simply because the code is so difficult to understand and follow. Put the pencil to yours right-a-way useing best estimates. If you owe anything,have it refigured by a pro after Jan 1st and I think you will see what I'm saying about how easy they make it to over pay. BTW,if you must hire your taxes done,use a CPA,they cost no more than tax services up front and way less over the long haul. Try and figure this out before Jan 1st and get out front of it. If noyhing else you will sleep better.
 
I have to start drawing out of my annuity in 2015.
I really don't need the money right now so I
was able to draw interest only. You may be able to do that also.
 
"Single Life": I assume that's a single life annuity, which means there will be a fixed monthly payout until you die.

"10 year certain": I assume that's a "PERIOD certain" option, which means it pays out fixed monthly payments for ten years; if you die before then your beneficiary gets the remaining payments.

It's a little unclear to me what your options are, but it sounds to me that you have the option of cashing it out now or converting it to an annuity. "Period Certain" and "Single Life" sound like annuities. Can't you just take the Minimum Required Distributions and leave it in the IRA? It sounds to me like your brokerage is trying to sell you an annuity you don't need. Your investment "advisor" may be looking at a nice sales commission if he sells you an annuity.

The obvious disadvantage of taking it all out now is you'll get taxed at a higher rate than if you draw it out over several years. If you're already in a high tax bracket that might be reason enough to not take it all out at once. Drawing it out over five or ten years makes sense. If I were in your shoes, I would draw it out as fast as I could without getting bumped into a higher tax bracket.

Something to consider when selecting an annuity option is the interest rate used to calculate the annuity. The lower the interest rate, the bigger the period certain payout will be relative to a single life annuity. As of today, the PBGC interest rate is 1.00 percent, which is quite low. Your brokerage should be able to tell you what interest rate they are using and will use to calculate the annuity options. This is important!!!! The interest rate earlier this year was 1.75 percent, if the annuity payout estimates they are giving you are based on the January 2014 interest rate, the period certain payment they are calculating will me MUCH LOWER than if they are using the current interest rate. Ask them what rate they are using!
 
I've been drawing on my IRA for the past ten years and have not paid a dime in taxes.I'm just under the cutoff point on income, so my SS is not taxed. My CPA tells me every year the max I can draw without triggering taxes.
 
People forget that in a big withdrawal, it will walk you up the tax brackets. In addition to all of your withdrawal, should you choose $100k, the rest of your income will be taxed at the higher rate as well. And another thing to consider is that the large income will increase part D of medicare and you will get less for that. For the large withdrawal, it could amount to =/- $200 per month for the following year. It will self adjust the second year back to your normal amount. My advise, take what you need! Spoken from experience!! Annunities are intended for multiple withdrawals, not lump sums!
 
The IRS always knows, the IRA holder is required by law to submit to IRS the status of your account at year end!!
 
Only thing that I heard of tricking the system is the OOPS procedure. There may be a penality for this by now. The procedure is transferring money from an IRA to a Roth IRA and withdrawing the amount that you need. No financial institution will do this for you, but you may be able to do it yourself. If you intend to pay back by year end, or transfer back, you are ok. If you don't, then you can say "OOPS, I forgot". May get you 1-2 in the gray bar hotel if you get caught doing this repeatedly!
 
You can recharacterize tax deferred funds in an IRA or 401K in order to move it into a Roth IRA but you must pay the tax on the tax deferred funds in order to do so. You can spread the tax burden out over 5 years or so.

You cannot simply transfer tax deferred funds into a Roth IRA without recharaacterizing the funds.

Dean
 
Do not consult the guys on the tractor website for financial advice that could cost you an arm a leg and your wallet. Get sound advice from a tax accountant on what you can/should/have to withdraw.

I know that at 70.5 you have to start taking money out so that the IRS goons can get YOUR money.
 
I've been retired 10 years. Pay more in property and income taxes than I made my first 10 years of working. Not on SS yet and when I do, that will be even more taxes. My IRA withdrawls cost me almost 1/3 in total taxes.
 
Thank you fellas for the advice and concerns. Much Appreciated and gives me things to think about before making a decision.
 
Wile E;

"I know that at 70.5 you have to start taking money out so that the IRS goons can get YOUR money."

When you pay taxes, it's always YOUR money. There's nothing special about the money that goes into a traditional IRA except that it is untaxed by the IRS when it is contributed and for as long as it stays in the IRA---until you turn 70-1/2. Then you are required to start withdrawing it and paying the tax on it that you didn't pay the year that it was income. You also have to pay tax on any gain that occurred within the IRA---just as you have to pay tax on interest, capital gains, etc. that you receive outside an IRA.

Like most middle class Americans, I'm furious at the way my taxes are misspent, but I'm not fundamentally opposed to the idea of paying taxes. Countries in which the people pay little or no taxes usually have very low standards of living. (Think sub-Saharan Africa or Central Asia.) Countries where the average person enjoys the highest standard of living usually have tax rates that Americans would find unbelievable. (Think Scandinavian countries.)

People on this site are immeasurably more self-reliant than the average American citizen, but even we appreciate a good highway system, for instance.

Stan
 

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