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Pay taxes now?
Old 12-05-2019, 01:39 PM   #1
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Pay taxes now?

I have some cash sitting in an inherited IRA account. I don't need to spend it right now, but was considering moving it to my joint account. This would be a taxable event. Are you folks doing this now since the Trump tax changes? Maybe taxes go up after the next election? Is it time to start paying some of these taxes now to minimize the "tax torpedo" later? Or should I reinvest it where it is in the IRA, and if I need money in the next year or 2, just pull it from my joint account, which is a typically suggested strategy.
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Old 12-05-2019, 02:01 PM   #2
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The question is was the person you inherited the IRA from making RMD's out of that account? Were they 70 1/2 or older? If so, you'll have to continue making withdrawals at a minimum base percentage of what that person's life expectancy was.

You'll want to keep it separate. But you're free to move it into other investments or funds if you don't care for where the money presently is.
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Old 12-05-2019, 02:14 PM   #3
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I'm already taking out the required distributions each year. This would be in addition to that.
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Old 12-05-2019, 02:28 PM   #4
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Why would you not convert the money into a ROTH instead of simply taking it out where earnings would be taxable ?
Asking since you seem to not have a purchase in mind, only tax savings.
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Old 12-05-2019, 02:37 PM   #5
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From previous threads the consensus was: You can not merge an inherited IRA into your personal IRA.
If the person you inherited the IRA from had started RMDs, you need to continue the RMDs albeit with your age in the calculation.

ETA: I misread the OP. What he's trying to do is a withdrawal/close the IRA, not merge IRAs.
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Old 12-05-2019, 02:40 PM   #6
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The question is was the person you inherited the IRA from making RMD's out of that account? Were they 70 1/2 or older? If so, you'll have to continue making withdrawals at a minimum base percentage of what that person's life expectancy was.
That depends, for example, if the IRA owner was not a spouse, the IRS says to use the younger of 1) beneficiary’s age or 2) owner’s age at birthday in year of death.
https://www.irs.gov/retirement-plans...-beneficiaries
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Old 12-05-2019, 02:44 PM   #7
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Why would you not convert the money into a ROTH instead of simply taking it out where earnings would be taxable ?

Unfortunately, Roth conversions are not allowed on inherited IRAs unless the deceased was the spouse and the IRA was converted to the survivor’s own account.
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Old 12-05-2019, 02:56 PM   #8
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I've been moving some taxable IRA money to Roth IRA money over the last few years. If tax rates stay the same it's pretty close to break-even. If they raise tax rates sometime in the future, as I suspect, I will make out better.

If they lower tax rates, I've probably been dreaming.
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Old 12-05-2019, 03:56 PM   #9
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Unfortunately, Roth conversions are not allowed on inherited IRAs unless the deceased was the spouse and the IRA was converted to the survivor’s own account.
This is the case for me. The deceased was not a spouse.
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Old 12-05-2019, 05:02 PM   #10
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You can play this game w/ your own numbers/assumptions......say 20% tax rate for math simplicity, 1000 in TIRA
1) Leave in TIRA. After N yrs it doubles to 2K. Withdraw and pay 400 taxes ending up w/ 1600.
2) Withdraw from TIRA paying 200 taxes and end up w/ taxable of 800. After N yrs it nearly doubles to 1600- with some tax drag. CG of 800 and CG tax of 120 so you end up with 1480-.
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Old 12-05-2019, 06:24 PM   #11
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You can play this game w/ your own numbers/assumptions......say 20% tax rate for math simplicity, 1000 in TIRA
1) Leave in TIRA. After N yrs it doubles to 2K. Withdraw and pay 400 taxes ending up w/ 1600.
2) Withdraw from TIRA paying 200 taxes and end up w/ taxable of 800. After N yrs it nearly doubles to 1600- with some tax drag. CG of 800 and CG tax of 120 so you end up with 1480-.
This is a good exercise, but it assumes tax rates stay the same right? My question assumes that taxes will go back up if a democrat is elected instead of a republican. But I guess there are a lot of variables to this scenario.
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Old 12-05-2019, 07:00 PM   #12
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This is a good exercise, but it assumes tax rates stay the same right? My question assumes that taxes will go back up if a democrat is elected instead of a republican. But I guess there are a lot of variables to this scenario.
Ignoring the political parties
and as you note there are a lot of variables
but be aware that the current tax rates were passed with a 10 year expiration date when they revert back to the higher brackets by default (unless they are extended, but thats one of the many variables).

I'd have to look up when the expiration date is, but you can assume its 8 years or less from now.
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Old 12-05-2019, 07:34 PM   #13
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OP - the question has to do with what tax bracket you're, in, and more specifically, what % bracket the distributions would be in. Most here would say that you should 'convert' or pay taxes, staying within the 22% tax bracket, but FATFIRE folks, might take that higher.

RMDs...some folks seem to think that you have to take exactly what the RMD is...but that's not true..it's a required 'minimum' distribution...you can always take out more. You can liquidate the account and pay no penalties if the RMDs have started.
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Old 12-05-2019, 07:39 PM   #14
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This is a good exercise, but it assumes tax rates stay the same right? My question assumes that taxes will go back up if a democrat is elected instead of a republican. But I guess there are a lot of variables to this scenario.
It's just an illustrative example. You can assume whatever you want re: taxes rates now and then. Just makes it semi-quantitative rather than intuitive.
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Old 12-06-2019, 08:05 AM   #15
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Great points everyone, thanks. I did not realize the tax law was for 10 years, so that helps. Unless of course, the new president and congress decide to change it again....
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Old 12-06-2019, 08:18 AM   #16
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Research tells me the Tax Cuts and Jobs Act (TCJA) of 2017:

"The majority of its provisions kicked in January 1, 2018, and most of the changes will expire at the end of 2025 unless Congress extends them."

https://www.schwab.com/resource-cent...rs-should-know

"The individual and pass-through tax cuts fade over time and become net tax increases starting in 2027 while the corporate tax cuts are permanent. "

https://en.wikipedia.org/wiki/Tax_Cu...bs_Act_of_2017

Some among us can surely plan with all of that in mind. But not me!
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Old 12-06-2019, 09:54 AM   #17
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There's always a question in regards to what happens with taxes but there is no assumption that the rates will change for the immediate future. Even if there's a change in administration it would take some years to implement a major tax increase.

The only change from last year for the most part is if you divorced in 2009 (and moving forward) you're not able to deduct alimony from your taxes and the recipient does not claim on income.
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Old 12-08-2019, 12:31 PM   #18
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I am planning on basically that in modification. I have 3 Inherited IRAs, (maybe only totaling $90k) each which requires a separate RMD. Once I can start Roth conversions, where part of the savings is definitely taking in to account the tax rate cut through 2025, I will convert from tIRAs, and pay the tax bill out of cashed in inherited IRA as well as cash accounts once they are exhausted. It is really not much of a net gain (fungibility from cash accounts) but will prevent having to pay the higher tax rate on the added basis after 2025 on them & eliminate those pesky RMDs until forced to take them at age 70.5, where they can be taken from account of my choice instead of the dedicated Inherited IRA.
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Old 12-08-2019, 12:44 PM   #19
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I, too, have an inherited IRA from which I'm taking RMDs. In my case, it's not a huge amount of money and I use those RMDs for tax withholding.

Other things to consider are whether you are making Roth conversions from your own TIRAs, whether you plan to take capital gains from taxable accounts at 0% tax rates, whether you are trying to stay under the ACA cliff, etc., since (obviously) withdrawals from the inherited IRA count towards regular income. My DB decided to take all the money out of his half of the inherited IRA, but that was his preference. One factor in his decision was moving from a no state income tax state to one that does have income tax.
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Old 12-08-2019, 06:45 PM   #20
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I, too, have an inherited IRA from which I'm taking RMDs. In my case, it's not a huge amount of money and I use those RMDs for tax withholding.

I also find the inherited IRA RMDS useful for tax withholding for my entire years tax instead of paying quarterly estimated taxes. I also had several inherited IRAS from 2 different companies, so I transferred one to the other for simplicity of RMDs.
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