[tcxr750]

After taking small amounts from my IRA for several years I had a big surprise when I turned 70 1/2. You are required to take increasing percentages of money from your account wether you want to or not. I found an RMD calculator on the fidelity website and the results show the percentages increase over time. There is a 50% penalty if you do not meet the calculated withdrawals. (consult your investment advisor about this).
As a pre baby-boomer generation person I got my big surprise earlier than many people. Roth IRA anyone?

[collie1228]

This is not a new requirement - I've always known that I must start taking distributions at the age of 70-1/2. Our Uncle Sam has to get his sometime - for IRA's and 401(k)s he only lends us "his" tax money for awhile.

[784caroline]

I know people who have cashed in an IRA or 401K to buy a house here in TV. All this money is taxable in the year distriibuted just like an RMD.

Also beware that an IRA/401K/403B/459 distribution(s) (either from your account or something you inherited plus any RMD will be added to your current year Adjusted Gross Income which "Could" depending upon your income levels impact your Medicare Part B premiims for the coming year.

For ex, if you take $200K from your IRA to buy a house, it will definitely put you (and your spouse) in the next income threshold level for medicare Part B.

[tcxr750]

I knew that withdrawals would have to be made. The percentages required to be made exceed my need and continue to increase. That took me by surprise. With a Roth IRA you can take out what you want when you want it. (almost) My Investment Advisor didn't give me information in advance of the start of RMD. I have seen some posts on TOTV regarding how to invest the excess $$$ from the RMD. All good information.

[leftyf]

That's why I started taking withdrawals from my IRA at 59 1/2 and putting them into my Roth IRA. I take smaller amounts that way and as planned by my accountant, by the time I turn 70 1/2, all of my IRA will be converted to a Roth IRA and I will have paid nearly no income taxes.

[buzzy]

Originally Posted by leftyf

That's why I started taking withdrawals from my IRA at 59 1/2 and putting them into my Roth IRA. I take smaller amounts that way and as planned by my accountant, by the time I turn 70 1/2, all of my IRA will be converted to a Roth IRA and I will have paid nearly no income taxes.

Surely you have been paying normal income taxes on IRA withdrawals all along, no? Every dollar of my withdrawals has gone into my taxable income. Maybe it just doesn't seem as bad over time, and not bumping me into another bracket.

[leftyf]

Originally Posted by buzzy

Surely you have been paying normal income taxes on IRA withdrawals all along, no? Every dollar of my withdrawals has gone into my taxable income. Maybe it just doesn't seem as bad over time, and not bumping me into another bracket.

Of course I have been paying income taxes on all money withdrawn from my IRA, but the tax rate is controlled by how much I withdraw. That's what my accountant is for. He keeps me into the lowest possible tax bracket with smaller withdrawals. I will have my IRA totally depleted before I turn 70 1/2, but my wife will still have quite a bit left in her IRA when she reaches 70 1/2. At least when we reach 70 1/2, we will be in a much lower tax bracket than if we had left all of our money in both IRA's. If you are still young enough, it's worth talking to your accountant about.

[billybye]

Originally Posted by 784caroline

I know people who have cashed in an IRA or 401K to buy a house here in TV. All this money is taxable in the year distriibuted just like an RMD.

Also beware that an IRA/401K/403B/459 distribution(s) (either from your account or something you inherited plus any RMD will be added to your current year Adjusted Gross Income which "Could" depending upon your income levels impact your Medicare Part B premiims for the coming year.

For ex, if you take $200K from your IRA to buy a house, it will definitely put you (and your spouse) in the next income threshold level for medicare Part B.

IRS.gov has a simple way to calculate what is needed to be withdrawn. Most people have a lower income after retiring, so a tax break while working for higher wages is beneficial.
If I could withdraw $200,000 a year from my IRA every year I wouldn't be worrying about taxes or paying more for Medicare.

[buzzy]

Originally Posted by leftyf

Of course I have been paying income taxes on all money withdrawn from my IRA, but the tax rate is controlled by how much I withdraw. That's what my accountant is for. He keeps me into the lowest possible tax bracket with smaller withdrawals. I will have my IRA totally depleted before I turn 70 1/2, but my wife will still have quite a bit left in her IRA when she reaches 70 1/2. At least when we reach 70 1/2, we will be in a much lower tax bracket than if we had left all of our money in both IRA's. If you are still young enough, it's worth talking to your accountant about.

Makes sense. In my situation, I've already been taking monthly payments for living expenses. This year, my RMD is less than what I am already withdrawing. Since the RMD age factor increases by 1 each year, some day I might have to take more than I need.

[784caroline]

Originally Posted by billybye

IRS.gov has a simple way to calculate what is needed to be withdrawn. Most people have a lower income after retiring, so a tax break while working for higher wages is beneficial.
If I could withdraw $200,000 a year from my IRA every year I wouldn't be worrying about taxes or paying more for Medicare.

The example of a $200K withdrawal from an IRA is NOT every year but a one time event to provide for a better downpayment on a house.

Otherwise I would agree with you if someone could afford to withdraw $200K every year..thats would be one heck of an IRA balance...no need to worry about taxes.

[tcxr750]

The downside of the RMD is that it creates a situation where your IRA reaches a peak in value and then goes down. The upside is that the total IRA depletion seems to occur around your 115th birthday. Check out an RMD calculator and see. For best results speak with an accountant and an investment advisor. I've seen useful advice on this website of what to do with extra money for reinvestment after you take the mandatory RMD.

[rubicon]

One of the investment devices I applied was a ladder of investments which kept my need to withdraw from my IRA. Another device was to remain on a expense budget. The RMD 70 1/2 withdrawal requirement to me means pay your taxes and use the balance for reinvesting. so while the initial IRA is depleted it is hopefully offset somewhat by future investments. An investors ultimate goal obviously is the deciding factor in strategies applied.

[TNLAKEPANDA]

There is a great calculator at Bankrate.com that let you see where you will be at when you hit 70 1/2 if you are not there yet. Most people our age have their retirement funds in a traditional IRA.

IRA Minimum Distribution Calculator