Trying to understand a withdrawal plan.

[Midpack]

I have not read this yet, but I recently noticed it at B&N and was tempted to buy it. NOLO publications have been good in my experience. You might be able to check it out at your library or flip through one at your local bookseller to see if it would be helpful...FWIW.

[Gotadimple]

Quote:

Originally Posted by Alan I still don't get it and am probably not understanding your post. (sorry to labor the issue) I have a T-IRA, zero cost basis since it was rolled over from a 401k (all contributions to it have been before tax for its 20 year life). Suppose it is invested in a Wellesley fund and the quarterly dividends and annual capital gains go into a VG MM fund within the IRA and are then withdrawn as a distribution each quarter. Will it be taxed as regular income? - no consideration if the dividends are qualified or if the capital gains are long or short term. Similarly if the contents are invested in a VG total stock mkt fund and once a quarter I sell some shares into a VG MM fund within the IRA and then withdraw the proceeds as a distribution each quarter. Will it be taxed as regular income? - no consideration if the capital gains are long or short term. I would think that since the money that initially went into the 401k was before income taxes, then all the money that comes out of the IRA are taxed at the marginal income tax rate of the owner regardless of how much of it was the result of capital gains etc.

Alan,
I think you have your answer and I was confused by your need to identify dividends in the IRA.

It is simple: if you move money from an T-IRA to your taxable account money market, you pay taxes on the entire amount. It doesn't matter if its interest, dividends, or a reduction in your original principle -- you pay taxes on it -- as long as the initial deposit went in pre-tax.

Some of us however, chose to continue contributing to a T-IRA (before there was a Roth option and before Ed Slott said 'Set up Separate Accounts') with post-tax $.

In that case, the wrinkle on any distribution is whether the entire account is pre-tax (deposits were made before taxes were collected), or the account is post-tax (deposits were made after taxes). In pre-tax, everything is subject to regular income tax. In post tax you have to identify the proportionate share of the account on which taxes have already been paid, so you don't pay them again.

You don't have that situation.

[Ed_The_Gypsy]

Alan,

Thank you for the link to The Retirement Pros web site. I downloaded the pdf on SS and am reading it now.

I am skimming (my wife hates that) this thread just now and may have missed something.

I have been skimming The Retirement Pros web site also just now and notice that they emphasize fixed annuities and insist they are without risk.

I know this has been discussed ad nauseum, but people need to know that is simply not true. There are new readers who may not have read earlier threads, so it bears repeating. Just for example, years ago, Baldwin United defaulted on their annuities. Also years ago, there was an annuity company (I forget the name) that was chosen by Reading and Bates ("an inconsequential S&P 500 company" at the time) for their defined benefit pensions because they were the lowest-cost provider who could not support the promised payout and most of R&B's retirees lost something like 30% of their pension. The court ruled that, while things did not turn out well, R&B had acted properly as a "prudent man" and was not liable for the difference. However, when sued by individuals, they settled with those individuals--and only the ones who sued, not a class-action.

This is quite separate from the argument that an individual could do better because everyone has access to similar investments and insurance companies still have to make a profit, reducing your payout.

On the positive side, I am sure that most annuities are safe. I do feel that one should understand that there is some risk, however. There are alternatives, which The Retirement Pros do discuss also.

The prospect of [hopefully] predictable payouts when I can no longer manage my own affairs may drive me to buying one or more annuities. I have seen enough friends and family in such condition to be a warning to myself. Time will tell. YMMV.

[Alan]

You're welcome Ed.

If I didn't have private company pensions I would definitely consider SPIA's, and, like my 4 pensions, I would diversify as best as I could, and choose top rated insurance comapnies. (my pensions were not planned or by choice, it just happened that way and 2 of them are from previous employers in the UK so are subject to currency variations).

[kaneohe]

Quote:

Originally Posted by Gotadimple Just to confirm what I think you mean by: The same would be true of a Roth - no taxes on withdrawals whether it be dividends or capital gains It is true that all withdrawals from a Roth are (currently) free of income tax, there is no distinction between original funds, or earnings/gains. -- Rita

I don't think this is quite true. There are age and "5 yr clocks" that affect the answer. Here's a very useful table I found at fairmark.com

Re: Roth IRA Rules - Table Approach
Posted by: KAWill (IP Logged)
Date: October 14, 2010 11:57PM

Roth IRA Distribution Table

UNDER AGE 59.5
FIVE YEAR CONVERSION HOLDING PERIOD NOT MET

Contributions: Tax-No; Penalty-No
Conversions: Tax-No; Penalty-Yes (Taxable Portion)
Conversions: Tax-No; Penalty-No (Nontaxable Portion)
Earnings: Tax-Yes; Penalty-Yes

UNDER AGE 59.5
FIVE YEAR CONVERSION HOLDING PERIOD MET

Contributions: Tax-No; Penalty-No
Conversions: Tax-No; Penalty-No (Taxable Portion)
Conversions: Tax-No; Penalty-No (Nontaxable Portion)
Earnings: Tax-Yes ;Penalty-Yes

OVER AGE 59.5
LESS THAN FIVE YEARS SINCE OPENING FIRST ROTH IRA

Contributions: Tax-No; Penalty-No
Conversions: Tax-No; Penalty-No (Taxable Portion)
Conversions: Tax-No; Penalty-No (Nontaxable Portion)
Earnings: Tax-Yes; Penalty-No

OVER AGE 59.5
FIVE YEARS OR MORE SINCE OPENING FIRST ROTH IRA

All Distributions Are Qualified

No Taxes
No Penalties

Note: The table is not applicable to timely distributions of excess contributions or return of regular contributions.

[kaneohe]

Badger.....here a short and sweet discussion about SS taxation
Social Security: Taxable Portion of Social Security Benefits

I believe you may be mixing up 2 different concepts:
1) if have earned income from wages while getting SS, if you are less than some age (something like full retirement age which depends on birthdate) and earn more than some amount.....probably the number you mentioned in your OP, then your SS will be reduced by some amount dependent on your earnings.....this is earnings from sweat-of-the-brow work, not income from dividends, interest, etc.

2) This is separate from taxation of SS which is discussed in the link above.
Generally all your income + muni interest + 50% of SS is used to determine
what fraction of your SS is taxed. In the list of income you had in your OP,
most everything would be included except your cash bucket and your Roth and non-taxable TIRA distributions from non-deductible TIRAs (actually it's as Rita explained about pro-rata division)
(although possibly if you had taxable Roth distributions they might also be included....not sure about this one).