Timing withdrawals from retirement accounts can increase tax savings

Article Abstract:

An important consideration of taxpayers with individual retirement accounts (IRAs) is the proper planning of withdrawals to minimize tax liability since, for many taxpayers, IRAs will provide the majority of retirement benefits. The age of the taxpayer has important ramifications for strategy: between ages 59 1/2 and 70 1/2, taxpayers can pick the amount that can be distributed. Decisions on timing and amount of distributions should consider the taxpayer's tax bracket, how close the taxpayer is to the next bracket, the amount of social security income, and itemized deductions. Taxpayers should withdraw an amount allowing for the maximum use of state exclusion or credits and taxpayers with fluctuating incomes should make larger withdrawals in low income years. Generally, taxpayers should wait as long as possible to start a distribution and then withdraw funds over one to three years.

Tax accounting

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Distribution planning can reduce the tax burden on IRAs

Article Abstract:

Owners of individual retirement accounts (IRAs) need to be aware of the tax consequences associated with them, particularly with respect to income tax and estate tax rules since a type of double taxation may occur in the treatment of distributed and undistributed funds. A key example of such double taxation is the payment of estate tax on IRA funds that pass on to heirs and beneficiaries since the undistributed funds actually represent deferred income taxes. Distribution options that may be used to avoid double taxation are presented as a guide to those who wish to minimize income and estate tax claimed on a taxpayer's estate. Strategies for deflecting the impact of penalty taxes on certain types of distributions are also discussed. Case studies of various distribution, estate planning and tax minimization strategies are also provided.

Laws, regulations and rules, Tax planning, Transfer taxes

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