A traditional IRA can be reduced beyond required minimum distributions to manage taxes, but the destination of the withdrawn funds determines the outcome. Placing extra withdrawals into a regular brokerage account can waste valuable tax advantages because heirs will face higher tax rates when they inherit and must drain the IRA within 10 years. Converting the additional withdrawals to a Roth IRA in the account holder’s name can allow the money to grow tax free. This approach reduces the amount subject to future inherited IRA taxation. Uncertainty about future life circumstances supports taking action while the conversion can be done.
"“You should take additional money out above the RMD, no problem. But you should convert it to a Roth IRA in your name. You should let it grow tax free.” She added the protective logic behind it: “You do not know what your life is going to be at 83, at 93, at 97.”"
"“Pulling money out of a traditional IRA above the RMD can save a lot of tax, but only if the dollars land somewhere they can keep compounding tax-free. Parking the withdrawal in a regular brokerage account, as the advisor suggested, throws away the most valuable real estate in the tax code.”"
"“Assume a 75-year-old in the 22% federal bracket has a $1 million traditional IRA. Under the SECURE Act, when she dies, her adult children (non-spouse heirs) must drain the inherited IRA within 10 years. If those kids are doctors, lawyers, or dual-income professionals in their 50s, they are very likely in the 32% or 35% bracket. Every $100,000 distributed to them is taxed at their rate, not hers.”"
"“Run it out. $100,000 withdrawn now at 22% costs $22,000 in tax. The same $100,000 forced out to heirs at 35% costs $35,000. That is a $13,000 gap on every $100,000, and the gap widens further once you stack state income tax on top in places like C”"
Read at 24/7 Wall St.
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