Make a distribution with large withholding for I-Bond?

[qwerty3656]

Can I just withdraw $5,000 extra from my Roth IRA, withhold 100% of it, and then apply my "refund" for $5000 in an I-bond? this would be in addition to $10k each that I purchased for myself and my wife.

 

[pb4uski]

Can I just withdraw $5,000 extra from my Roth IRA, withhold 100% of it, and then apply my "refund" for $5000 in an I-bond? this would be in addition to $10k each that I purchased for myself and my wife.

No, I don't think so. To my knowledge you cannot do tax withholding on Roth IRA withdrawals. Since Roth withdrawals are by definition tax-free (I assume that you are over 59-1/2) why would they offer tax withholding?

If it helps, what I did was to prepare my return for filing. Let's say that at that point I am due a $100 refund. Then I did, online, an estimated payment for $4,900 that I indicated was for the tax year that I was filing the return for, to increase my refund to $5,000 and I reflected that final estimated payment in taxes paid on my return. Then, once the $4,900 estimated payment cleared my bank I filed my return with a $5,000 refund in paper i-bonds electronically.

 

[ERD50]

No, I don't think so. To my knowledge you cannot do tax withholding on Roth IRA withdrawals. Since Roth withdrawals are by definition tax-free (I assume that you are over 59-1/2) why would they offer tax withholding? ....

It might be worth asking your broker. In Illinois, retirement income is not taxed. I helped my MIL with her finances, and we were able to apply both Federal and IL State withholding from her T-IRA (at Fidelity), even though it isn't taxable in IL (we did this to eliminate the need to do quarterly estimates - it simplifies things).

But when I went on-line to see if I could do this at E*Trade (when the time comes for my RMDs), where I have my T-IRA, there was no option for IL withholding. I called and asked, and the rep assured me that they could handle this manually for me. I'm skeptical, but when the time comes I'll do it early enough in the year to test it, and if they can't, I'll just move the money to someone who will. I suspect that may motivate them, but maybe not.

But Roths, not being taxable under any cases, might be a different beast.

-ERD50

 

[Dash man]

I’m not sure why you’d want to remove $5,000 tax free growth in a Roth IRA for an iBond. Remember, interest rates on iBonds change every six months. The current high rates won’t last forever. Keeping that $5,000 in the Roth invested in a broad market index fund will be a better investment over time.

 

[qwerty3656]

I’m not sure why you’d want to remove $5,000 tax free growth in a Roth IRA for an iBond. Remember, interest rates on iBonds change every six months. The current high rates won’t last forever. Keeping that $5,000 in the Roth invested in a broad market index fund will be a better investment over time.

Well, most of my money is in Roth IRAs with the remainder in a regular IRA. I have begun drawing down my IRAs to live and limit the regular IRA drawdown to my targeted taxable income (so the marginal "drawdown" comes from my Roth's).

So it's either take from Roth, or don't buy. Sounds like you think "don't buy". I'm not sure how to properly determine the right strategy.

 

[gauss]

Well, most of my money is in Roth IRAs with the remainder in a regular IRA. I have begun drawing down my IRAs to live and limit the regular IRA drawdown to my targeted taxable income (so the marginal "drawdown" comes from my Roth's).

So it's either take from Roth, or don't buy. Sounds like you think "don't buy". I'm not sure how to properly determine the right strategy.

I regularly take withdrawals from my Roth IRA at Vanguard and have taxes withheld. Not all Roth withdrawals are tax free.

On the other hand, I am under age 59 1/2 so it is possible that they will stop allowing this for me in the future.

YMMV
-gauss