Regular income tax

Forum|Forum|1 year ago
June 26, 2024
2 replies
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I currently am 60 and not getting Social Security. I am living off of my IRA. Is it a good idea to also sell some Roth stock since it’s not taxable to reduce my overall tax burden each year?

Ask the Experts - Retirement II - June 2024

BettieG

While we aren’t able to provide financial planning advice, the conventional wisdom is to take money out of taxable retirement accounts first, such as a traditional IRA, then any tax deferred accounts, and finally a Roth IRA. As you know, distributions from your Roth IRA will generally be tax-free, while distributions from your traditional IRA constitute taxable income.

Some of the considerations for deciding which account to draw from is your projection of your future tax bracket, and contemplating allowing your Roth IRA more of an opportunity to grow over time. Having said that, this is the kind of question best posed to a financial planner or wealth management advisor.

I hope this necessarily general response is helpful!

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FranklinF

FIRSTLY, IRA Distributions are TAXABLE E, for the most part. However, withdrawing NONDEDUCTIBLE CONTRIBUTIONS is NOT a Taxable Event because said contributions were done WITHOUT the benefit of a deduction in the first place.

SECONDLY, being of age 60 means that you will NOT be subject to the 10% ADDITIONAL TAX PENALTY ON EARLY IRA DISTRIBUTIONS. Some Exceptions do apply. Please click on the link below:
Exceptions to the 10% additional tax

THIRDLY, Roth IRA Distributions are NONTAXBLE (and penalty-free) if they are qualified. In some instances you may need to pay taxes and penalties on earnings, such as:

Being younger than 59 1⁄2, unless an exception applies (please see above) you may be subject to taxes on gains at your ordinary income tax rate and a 10% penalty.
If you are older than 59 1/2 years and haven't met the five-year holding requirement, your earnings will be subject to taxes but not penalties.

LASTLY, the withdrawal of money from a POST-TAX ACCOUNT, such as a Roth IRA or a Roth 401(k), WILL NOT INCREASE YOUR TAXABLE INCOME, and thus, WILL NOT APPLY TO YOUR INCOME TAX BRACKET.

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