Stu talks about the Income Tax implications of drawing from an IRA

 

Do you have questions about withdrawing from your IRA? We like to describe the potential growth in an IRA as a bell curve, hopefully growing up over the years, and then slowly being drained over the rest of your life expectancy, starting at age 70 ½ years old.

There are three types of withdrawals, also known as distributions:

 

  • Owner withdrawal before age 59 ½, after age 59 ½, and after age 70 ½;
  • Owner passes away and the spouse inherits account;
  • Owner passes away and a non-spouse inherits the account.

Distributions before age 59 1/2. In addition to all applicable federal and state taxes, if you take distributions before age 50 1/2, you’ll also have to pay a 10-percent penalty. However, under certain extenuating circumstances, you may avoid the penalty—though you’ll still owe the taxes. Exempt situations may include:

  • Buying your first home;
  • Paying for a child, grandchild, or spouse’s school;
  • Unreimbursed medical costs that are more than 7.5 percent of your adjusted gross income;
  • Health insurance premium costs, if you’re unemployed for 12 weeks or more;
  • In the case of disability or death.

Distributions after age 59 1/2. There are no penalties or restrictions if you take disbursements between the ages of 59 1/2 and 70 1/2. Remember, your interest, dividends, and capital gains will be taxed as ordinary income, so you may owe state and federal taxes.

Distributions after age 70 1/2. Once you turn 70 1/2, you must take distributions. Also known as minimum required distributions or MRDs, if you don’t make these withdrawals, you’ll pay a penalty of up to 50 percent of the amount you should have taken.

If you pass away and your spouse inherits your account. Good news: if your spouse doesn’t need the funds right away, they can roll them over into their own IRA then take distributions after 59 1/2. If they need the funds early and are under age 59 1/2, they can roll the funds into a so-called “Inherited IRA” account and avoid the 10-percent penalty.

If you pass away and a non-spouse inherits your account. If your IRA passes to a non-spouse beneficiary, they may transfer the assets into an inherited IRA beneficiary account. Distributions will depend on your beneficiary’s age and life expectancy, and will be taxed as part of their income.

The rules that govern IRA distribution and inheritance are complex. Meet with a trusted financial advisor to work through the details.

Considering tapping into your IRA? Know the rules first to avoid fees, taxes or penalties.

Listen below to hear Stu and Win Damon review this topic on Joppa Radio 106.1 Newburyport

 

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About Stu: With more than 25 years of experience as a credentialed tax professional, Stu Steinberg brings a broad depth of knowledge to his work. Stu founded Erock Tax to help provide tax strategies to individuals, families and small businesses. He uses his CPA expertise to help each client navigate their long-term debt and mortgage, gaining them the best deals and rates possible. Stu is passionate about empowering his clients through education about their tax health. He is highly energetic and brings a sense of optimism, creative problem-solving and a deep level of commitment to every Erock client.

Stu chats TAX Reform with Win Damon on FM 96.3 Joppa radio

Tax reform is front and center these days as potential plans for reform are being pushed and are in ASAP mode.  As usual there are so many stories and claims to this extremely huge issue.  After reviewing dozens of articles I am hard pressed to find any that say that reform as it is currently being debated is going to be good for America.

The one argument the GOP continues to use is the “trickle down” theory which says cut tax on the richest and the fruits of the tax cut will trickle down to the masses.  This I find to be unequivocally untrue and in fact it did not work under Reagan or Bush and will fail again if enacted.  The rich and big corporations will get richer, the poor will get poorer, and the middle class will continue to shrink.  The cut will stimulate little job creation, will not repair our crumbling infrastructure, and will most certainly lead to vital cuts for programs such as medicare and social security as well as ballooning the already massive deficit.

In fact, I have not found one article advocating for these cuts that uses any “theory” besides trickle down.  See the articles below among many others that show how amazing these cuts are for the top 1/2 of 1%.  In fact the “pass through” tax break will provide massive tax cuts to the super wealthy.  Please read for yourself below.

http://www.businessinsider.com/trump-gop-tax-plan-middle-class-effects-tpc-analysis-2017-11

https://www.cbpp.org/research/federal-tax/republican-leadership-tax-plans-pass-through-tax-break-would-provide-massive  (From the Center on Budget and Policy Priorities)

I hope I am wrong but all the intellectual studies back up my claims.  Trickle down will fail and cause far higher inequality in America.  Again, I hope i am incorrect.

 

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Like what you have read? Please share with friends.

About Stu: With more than 25 years of experience as a credentialed tax professional, Stu Steinberg brings a broad depth of knowledge to his work. Stu founded Erock Tax to help provide tax strategies to individuals, families and small businesses. He uses his CPA expertise to help each client navigate their long-term debt and mortgage, gaining them the best deals and rates possible. Stu is passionate about empowering his clients through education about their tax health. He is highly energetic and brings a sense of optimism, creative problem-solving and a deep level of commitment to every Erock client.

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