Planning your IRA Distributions


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Eli Mitcham speaks out on common financial planning concerns. Information provided here is meant to be general in nature and should not be construed as a solicitation to effect transactions in securities, or the rendering of personalized investment advice for compensation, over the Internet. Disclosure to Consumers

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Filled with Timely Tips to help you get the most out of your finances!

Plan your IRA Distributions

Like scores of seniors, you have probably avoided removing money from your IRA for as long as possible. The tax-deferred earning and growth can make many investments in an IRA look much better than their taxable counterparts. But there will come a time (age 70½) when the IRS requires that you start withdrawing funds and paying income tax. With some planning, however, you can make the Required Minimum Distributions (RMD) as painless as possible.

1: Start early. The sooner you start planning how you will take money from your IRA, the
better. Three to five years is ideal. This will give you a good projection of your income from pensions, Social Security, and investments. Then you will be able to decide whether the tax bite would be less if you start taking distributions now or later.

2: Don’t double-up. You are not required to make the first withdrawal until April 1 of the year after you turn 70½. But if you wait until then, you will have to take a second distribution by December 31 of the same year. Two distributions mean more income tax and might bump you into a higher tax bracket.

3: Beware of Social Security creep. Fifty percent of your Social Security income is taxable when your adjusted gross income (AGI) hits $32,000 ($25,000 for single taxpayers). It rises to 85% when your AGI reaches $44,000 ($34,000 for singles). Planning your IRA distributions may show that you might possibly be able to have better control on the amount of tax you pay on your government benefits.

4: Convert to a Roth IRA. Prior to age 70½, you can transfer some or all of your assets from your IRA to a Roth. The move will be taxable, but you will not be faced with the RMD rule.
This could be especially beneficial if you have investments that have dropped significantly in value, yet you believe they will recover. In addition, withdrawals from a Roth IRA are not included in calculating the tax rate on your Social Security benefits.

For help in determining the most tax-efficient method of taking your IRA distributions, please contact me to learn more. If you would like to meet either in person or by telephone, please use the CONTACT US link and let me know.

I look forward to meeting you!