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-   -   IRA taxes on withdrawal (http://www.early-retirement.org/forums/f28/ira-taxes-on-withdrawal-68397.html)

swodo 09-17-2013 11:47 AM

IRA taxes on withdrawal
 
Is there any way to legally avoid taxes when making an IRA withdrawal after retirement? Perhaps making a monetary gift to someone?

Probably not, but thought I'd check.

akck 09-17-2013 11:50 AM

I believe you can make a charitable donation from an IRA that won't be taxed.

GrayHare 09-17-2013 12:15 PM

Itemize enough deductions to offset the income.

RunningBum 09-17-2013 12:19 PM

Well, if your deductions and exemptions exceed your withdrawals you wouldn't be taxed. Making a charitable donation would qualify. A monetary gift to an individual does not. The only tax consideration there is keeping the gift under the limit where it affects your estate tax.

kaneohe 09-17-2013 12:55 PM

Quote:

Originally Posted by akck (Post 1358080)
I believe you can make a charitable donation from an IRA that won't be taxed.

You need to be of RMD age (>70.5 y.o.) to make a qualified charitable contribution and it needs to be withdrawn before the RMD is complete.
Only other way I know is to make IRA your beneficiary when you go.

kaneohe 09-17-2013 12:59 PM

Quote:

Originally Posted by GrayHare (Post 1358090)
Itemize enough deductions to offset the income.

perhaps you mean, itemize enough deductions to exceed standard deduction before the IRA withdrawal?? .................so that the IRA withdrawal and charitable contribution will offset each other. If you can only itemize because of the IRA withdrawal, part of that may be going to match the standard deduction , so the contribution may not be fully tax free.

karluk 09-17-2013 01:18 PM

I am thinking out loud, not explaining something I've thought through carefully. So someone may easily poke holes in this strategy. But suppose you are fortunate enough to not need your IRA withdrawals for regular living expenses. If so, you might be able to combine IRA withdrawals with the home mortgage dedution in a way that avoids most of the taxes on the IRA withdrawals. Go out and buy a primary residence that is much more expensive than the one you own now. You are trying to increase your mortgage payment to match the amount of the desired monthly withdrawal from your IRA. In the early years of a mortgage the vast majority of the payment is interest expense, so you end up taking taxable IRA withdrawals but using the withdrawals to pay tax deductible interest. The net result is that you increase your net taxable income by only a little when compared to the size of the IRA withdrawals.

In a healthy real estate market (and admittedly the real estate market has been anything but healthy in recent years) there is a good chance that the increase in the value of your home would keep pace with the amount of interest you are paying on your mortgage, especially with interest rates still quite low right now. If so, you can sell your home in a few years and take advantage of the favorable tax laws to pay 0% capital gains tax on the sale of your primary residence. Overall, you would end up extracting money from your IRA and pay practically no tax on the amount withdrawn.

I get the feeling that this type of maneuver is too reminiscent of the housing bubble excesses to appeal to the average retiree. But I suspect that it would take only ordinary luck to succeed as a legal tax dodge. So I wouldn't be too surprised if someone has already tried it.

pb4uski 09-17-2013 05:32 PM

If you made an IRA withdrawal and then deposited the proceeds in a HSA then the net impact on TI would be zero so the ITA withdrawal would effectively not be taxed. You would need to be >59.5 yo and eligible for a HSA and the amount would be subject to the HSA contribution limits.

You could then spend the amount deposited on health insurance or health care costs or LTC insurance tax free

LOL! 09-17-2013 05:43 PM

Of course there is a legal way and it is easy: Make sure it is a Roth IRA.

Many people have plenty of time (especially early retirees) to make sure it is a Roth IRA.

There are any number of posts about converting a traditional IRA to a Roth IRA while not paying any taxes. One does have to plan though.


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