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IRA withdrawals?
Old 12-04-2020, 11:56 PM   #1
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IRA withdrawals?

Is there a strategy where it is better to withdraw some from IRAs before it is mandatory? We arenít rich by any means but after two years of retirement we have yet to tap into our retirement account except for some Roth money we took out to purchase some real estate adjacent to our home.
Even if I had to pay some taxes now I donít know if it makes financial sense to wait until the mandatory withdrawals start.
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Old 12-05-2020, 12:20 AM   #2
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Yes.

If you have enough in your 401K + IRA's where the mandatory withdrawal will push you into a new tax bracket, or push the survivor into a new tax bracket when one of you dies, it's worth doing now.

It's easy to figure out if you have tax software from last year.
Just add 0.037037037 x (401K+IRA's) to see what the RMD will do to your income.

Note: in practice the 401K and IRA are treated separately, but for calculations you can add them.
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Old 12-05-2020, 04:05 AM   #3
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Roth IRA conversion - Bogleheads discusses some things to consider.
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Old 12-05-2020, 08:40 AM   #4
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Our living expenses include SSDI, Taxable Income and some TIRA withdrawals at least until age 65.
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Old 12-05-2020, 08:45 AM   #5
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Quote:
Originally Posted by Alderman View Post
Is there a strategy where it is better to withdraw some from IRAs before it is mandatory? We aren’t rich by any means but after two years of retirement we have yet to tap into our retirement account except for some Roth money we took out to purchase some real estate adjacent to our home.
Even if I had to pay some taxes now I don’t know if it makes financial sense to wait until the mandatory withdrawals start.
Depending on your tax situation, absolutely. And perhaps not a withdrawal if you don't need the money for spending but a transfer of money from your traditional IRA to your Roth IRA... called a Roth conversion.

In short, between and when pensions and SS start there is often a number of years where the early retiree is in a low tax bracket and can use that low tax bracket to do low tax-cost Roth conversions. We've been converting to the top of the 12% tax bracket for years and have converted about $400k and paid 8.5% in federal income tax vs the 28% or more that we avoided by deferring that income while I was working... saving $78k in taxes. Or $54k in savings over the 22% marginal tax bracket that we expect to be in once we start SS. Cha-ching!

It makes sense where your marginal tax rate today is the same or less than your marginal tax rate once pensions or SS are online. It also makes sense for a married couple where one is health and the other has health issues, as single tax rates are a lot higher than married filing jointly tax rates for the same income.
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