<#-- Rebranding: Header Logo--> <#-- Rebranding: Footer Logo-->

Which is the more tax-friendly account to distribute from?

I am 64 years old and have a pension and SS income. I also have a IRA and a taxable investment account. My question is, which account is more tax friendly to withdraw from considering I will face Required Minimum Withdrawals in a few years? My home is in Ohio and I currently pay Ohio state income tax and a municipal tax in addition to federal taxes.

Retirement, Pensions, IRAs
Answers
Sort By:
Most Helpful
May 2017

All Roth IRA distributions are tax free giving investors the most tax friendly distributions. I have attached an article on the benefits of converting your traditional IRA into a Roth IRA which would be a more tax friendly account to take your distributions from, although when you convert from a traditional IRA to a Roth IRA you are required to pay taxes at the time of conversion. Additionally, with a Roth IRA you are not required to take your required minimum distributions. Which would give you more control of your distributions.

Converting your traditional IRA or 401(k) (or at least a portion of these funds depending on what taxes could easily be paid on those dollars that year or over a series of years) into a Roth IRA is a simple solution. By converting your traditional IRA into a Roth IRA you will:

  1. Reduce your tax rate risk: The risk that taxes in the future could be higher than they are today. Once it is converted, any withdrawals from the Roth account after five years and achieving the age of 59.5 will be tax-free. (For related reading, see: How a Roth IRA Works After Retirement.)
  2. Eliminate your Required Minimum Distribution (RMD): Once you turn 70.5 years of age the government wants your tax dollars so badly that they require you to take these funds out of your traditional IRA every year. If you forget or choose not to take these funds out of your traditional IRA, the IRS will impose a 50% penalty.
  3. When withdrawing funds from your traditional IRA, the income counts as provisional income, whereas when withdrawing funds from your Roth IRA, the distributions have no Social Security tax. Roth IRA distributions do not count against income thresholds that may cause Social Security benefits to be taxed.*
  4. Your heirs will receive your Roth funds tax-free. (For related reading, see: 4 Mistakes Clients Make With Roth IRAs and Their Estate.)
  5. Roth IRA conversions may be re-characterized if your financial situation changes that year.

Converting from a traditional IRA to a Roth could be a useful tool. By paying taxes today you can take advantage of historically low rates.  Additionally, our new White House administration’s tax plan could potentially make it an even more attractive time.

Read more: Income Taxes and Your Retirement Accounts | Investopedia https://www.investopedia.com/advisor-network/articles/income-taxes-and-your-retirement-accounts/#ixzz4i3JEWN8S 

May 2017
May 2017
May 2017
May 2017