Early Withdrawal

Archive for the ‘IRA Withdrawals’ Category

Question: I took money out of an IRA last month, but I want to roll some of it back into the same account.?

Am I allowed to roll it back into the same account, or do I have to roll it into another IRA account in order to satisfy the IRS 60 day rule for not being taxed on an Ira Withdrawal?
Caveat Emptor, I only want to put some of it back into an IRA. I searched the internet and I didn’t find anything that required me to put the whole amount back in. I realize there are taxes and penalties on the part that is a permanent withdrawal. Do you know of any site that says that I am required to put the full amount back in?

Answer: Dear Cissy: Either works but I would NOT open a new account as the new trustee can not help you with coding the roll over and the original trustee will not know about it.

Roll over the money to the original account and pray they code it correctly on your 1009-R next year. If it is not coded correctly it can be reported correctly on your tax return but I guarantee letters will be generated from the IRS, a real big pain in the you know what. I have written several letters this past year to try and explain the r/o monies. You are on target with the 60 day rule.

This advice was prepared based on our understanding of the tax law in effect at the time it was written as it applies to the facts that you provided. Click on my profile to read more Errol Quinn Enrolled Agent

Peter Newman, Scott Borden, Michael Lee: Economics 2009

Question: Ira Withdrawal?

What is the minimum percent that I can withdraw from my IRA when I reach 70 1/2. I know it is based on life expectancy but I do not know what it is. Also, about 1/2 of my IRA consists of closely held unlisted stocks.. will I be required to get some sort of apprasial or valuation on them when I reach 70 1/2 or will they take my word for their approximate value??

Answer: You need more than the calculation of the required minimum distribution. The closely held stock should not be in the IRA. It may be possible to have this outside the IRA and have it qualify for capital gain treatment if you sell it. I strongly suggest that you seek qualified professional help from an attorney or a CPA.

Question: Ways to reduce income tax when you began making IRA withdrawals?

Any ideas to save on income tax before one has to start making withdrawals from IRA?
I thought one way would be if you’re 67 years old and you know you will have major medical expenses in these next 2 years, should you withdraw some out of your IRA since you will be able to deduct the medical expenses from your taxes? Otherwise, if you wait till 70 1/2, then you will not have the deduction benefit.
Any other ways to save income tax when you start making IRA withdrawals?
great answers so far.
The medical expenses are for procedures to be done this year and the next year, afterwards the amount spent on medical expenses will be less than the 7.5% of income required (no more procedures needed- otherwise healthy person).

Answer: You have substantial assets inside a tax-deferred traditional IRA and now you are facing a big tax bill when you take those required minimum distributions.

It is smart to see that those RMDs are going to bump you into a higher tax bracket and to plan ahead. You can start to draw the money out of your IRA as soon as you are 59.5. One strategy is to figure how much you can take out each year and not go into the next higher bracket, and take that out before age 70.5. You will not be paying higher tax on it, and it will reduce the balance in your account, and thus reduce your RMD.

If you do not need or want to move the money into an after-tax account or spend it now, you could figure the amount of withdrawal that doesn’t bump you into another tax bracket, and move that amount into a Roth IRA each year. You will pay regular income tax on the rollover, but the amount rolled over plus earnings is tax-free when you take a distribution, and is not subject to RMD. You can do this as long as your AGI (before the IRA rollover) is under $100K. This restriction disappears in 2010.

A taxpayer with this problem should consider switching current contributions to a Roth rather than a traditional IRA, since the current deduction may not be much benefit, and you want to reduce the RMD in a few years.

Once you reach age 70.5 and are subject to RMD, if you make charitable contributions, do them as charitable rollovers from your traditional IRA. These charitable rollovers can be used for RMD and are tax-free.

If you plan on doing Roth rollovers, get them done before you start your Social Security benefits. Roth distributions do not increase tax on SS benefits. This is another reason to move as much as you can from your traditional IRA to your Roth IRA before the RMD and SS benefits begin.

401(k) & IRA: An Introduction to Tax Free Retirement Accounts – Bills.com Video Blog