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Which investments should be sold first?
Old 11-09-2019, 12:24 PM   #1
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Which investments should be sold first?

Hi there.


I handle my moms account. She has an IRA which required by RMD she takes out ~$25,000 per year. She also has a personal taxable account. Stock portion is invested in ETF's and fixed income is split between CDs and Treasury Bills.


My question is she needs to withdraw ~$40,000 per year to meet expenses.


Should this be withdrawn from the IRA or the taxable?


Anyone have expertise or insight into this?


Thank you.
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Old 11-09-2019, 12:45 PM   #2
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I'd mix it to avoid paying the next tax bracket.
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Old 11-09-2019, 12:47 PM   #3
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Does she have much basis in the IRA? That would change up things if she is taking out $25,000 but has a basis of 50% or something.
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Old 11-09-2019, 12:54 PM   #4
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I'd mix it to avoid paying the next tax bracket.
Agreed.
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Old 11-09-2019, 12:55 PM   #5
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Doesn't she get SS ?

How old is she ?
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Which investments should be sold first?
Old 11-09-2019, 12:58 PM   #6
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Which investments should be sold first?

With the available info, short answer is spend RMDs and dividends from taxable accounts first. For a better, tax-efficient answer, we need to know:

Annual spending
Age
Filing status
SS income
Pension income
Annual dividends from taxable account
Value of tax-deferred account
Value if brokerage account and % that are LTCGs
Any other income
Is the goal to minimize taxes now, or to leave the largest possible bequest?
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Old 11-09-2019, 12:58 PM   #7
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Doesn't she get SS ?

How old is she ?

She does get SS


she actually needs an additional 30K from these accounts not 40K


Shes 80
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Old 11-09-2019, 12:59 PM   #8
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Does she have much basis in the IRA? That would change up things if she is taking out $25,000 but has a basis of 50% or something.

I believe thats irelavent as money from an IRA is considered income....doesn't matter what she paid for the investments in the IRA
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Old 11-09-2019, 01:03 PM   #9
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Originally Posted by HNL Bill View Post
With the available info, short answer is spend RMDs and dividends from taxable accounts first. For a better, tax-efficient answer, we need to know:

Annual spending
Age
Marital status
SS income
Pension income
Annual dividends from taxable account
Value of tax-deferred account
Value if brokerage account and % that are LTCGs
Any other income
Is the goal to minimize taxes now, or to leave the largest possible bequest?





Let me clarify....


Her all in spending needs for the year are 75K.
She gets 25K via the RMD
She gets 20 K via SS


so the ADDITIONAL she needs form the portfolio is 30 K not 40K..sorry about that...


she is on dividend reinvestment with all ETFs


my question is should I sell in the IRA or the taxable account for that 30K?


shes 80
single
500k in IRA and 500K in personal
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Old 11-09-2019, 01:03 PM   #10
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As previously posted, does the tIRA have any basis or is the $25k RMD result in $25k of income? (that would be very common)

What is the taxable money invested in? And what is the basis? If it is in a taxable bank account then there are no tax implications of withdrawals, but if it is in stocks then there would be LTCG from sales to consider.

How old is your Mom? Does she take the standard deduction or itemize?

A key thing to know is her marginal tax rate after SS and RMDs and any other income she has, but before discretionary withdrawals like taxable account sales/redemptions or additional IRA wtihdrawals.
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Old 11-09-2019, 01:04 PM   #11
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Quote:
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Doesn't she get SS ?

How old is she ?
I'm assuming over 70 since she is subject to RMDs.
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Old 11-09-2019, 01:07 PM   #12
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....500K in personal
and what is basis? If she takes $10k from personal how much is the tax gain?
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Old 11-09-2019, 01:10 PM   #13
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I believe thats irelavent as money from an IRA is considered income....doesn't matter what she paid for the investments in the IRA
Not true. I have several IRAs that were non deductible (we made too much to take a deduction on the contribution). They have a basis which is not taxed when withdrawn and does not count toward income.

It is true that the stuff inside the IRA does not have a basis, but the IRA itself can have a basis.
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Old 11-09-2019, 01:12 PM   #14
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Quote:
Originally Posted by FREE866 View Post
Let me clarify....

Her all in spending needs for the year are 75K.
She gets 25K via the RMD
She gets 20 K via SS

so the ADDITIONAL she needs form the portfolio is 30 K not 40K..sorry about that...

she is on dividend reinvestment with all ETFs

my question is should I sell in the IRA or the taxable account for that 30K?

shes 80
single
500k in IRA and 500K in personal
How is the 500k in personal invested?
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Old 11-09-2019, 01:15 PM   #15
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Not true. I have several IRAs that were non deductible (we made too much to take a deduction on the contribution). They have a basis which is not taxed when withdrawn and does not count toward income.

It is true that the stuff inside the IRA does not have a basis, but the IRA itself can have a basis.

Interesting. Never heard of that.
This is just standard self directed IRA
Im almost positive any withdrawals are treated as ordinary income
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Old 11-09-2019, 01:17 PM   #16
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How is the 500k in personal invested?

300K in major market index ETFs
200K in CD's and T bills.
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Old 11-09-2019, 01:17 PM   #17
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and what is basis? If she takes $10k from personal how much is the tax gain?

Total basis for the personal acct is 460K
worth 500K now
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Old 11-09-2019, 01:18 PM   #18
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Since from what you posted it looks like she is in the 12% tax bracket, I would do additional tIRA withdrawals to the top of the 12% tax bracket and then taxable account sales.

Top of 12% tax bracket for a single........$39,475
Standard deduction for over 65...............13,850
Income for top of 12% tax bracket..........53,225

Less RMD...........................................(25, 000)
Less 85% of SS...................................(17,000)
Less taxable account interest & div...........(x,xxx)

Headroom for 12% tIRA withdrawals......$11,325 minus x,xxx

Better yet, you could use a tax calcuator or the What-If worksheet in Turbo Tax to look at the incremental tax on $30k of tIRA withdrawals, $30k of taxable account withdrawals and 50/50, to get a sense as the the tax implications of the alternatives.
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Old 11-09-2019, 01:19 PM   #19
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Interesting. Never heard of that.
This is just standard self directed IRA
Im almost positive any withdrawals are treated as ordinary income
That is typical and makes sense.
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Old 11-09-2019, 01:22 PM   #20
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Since from what you posted it looks like she is in the 12% tax bracket, I would do additional tIRA withdrawals to the top of the 12% tax bracket and then taxable account sales.

Top of 12% tax bracket for a single........$39,475
Standard deduction for over 65...............13,850
Income for top of 12% tax bracket..........53,225

Less RMD...........................................(25, 000)
Less 85% of SS...................................(17,000)
Less taxable account interest & div...........(x,xxx)

Headroom for 12% tIRA withdrawals......$11,325 minus x,xxx

Better yet, you could use a tax calcuator or the What-If worksheet in Turbo Tax to look at the incremental tax on $30k of tIRA withdrawals, $30k of taxable account withdrawals and 50/50, to get a sense as the the tax implications of the alternatives.



awesome
thank you
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