Irvin, If you are over 70 1/2 you can make a gift from your IRA directly to a charity without incurring penalties.
Irvin, the answer really depends on how old you are. There is a speacial rule that allows for those who are at least 70.5 years of age to donate up to $100,000 from your IRA directly to a charity without having the amount counted as income
On the other hand distributions that occur on or after the IRA owner reaches age 59.5 may be subject to income tax but will not be subjected to the early-distribution penalty.
Irvin - it depends on your age - if you are over 701/2, you can have up to $100,000 transferred from your IRA directly to a non-profit without getting a tax-bill (or tax-credit for a charitable contribution.)
Thanks, all. Here's our next question from Hank
Hank, it is generally better to delay pulling out of tax-deferred accounts, (your IRA and 401k) until you are forced to do so at age 70.5.
Hank, unless you are 70,5 and have to withdraw from your IRA, we recommending tapping into taxable resources first due to taxes. Keep the tax deferred accounts growing.
Hank, the assets in your IRA and 401(k) grow tax deferred until you withdraw (and you have to take distributions from these accounts once you reach 70.5). So it is better to tap into your taxable accounts first
Hank - so much depends on your current tax bracket and where you expect it to be in the future. On top of that, there are estate-planning issues. So my first suggestion is to sit down with a Certified Financial Planner - see www.NAPFA.org.
That said, I like to see a degree of balance between taxable and tax-deferred accounts, so, all things considered, I'd start by taking money from the largest account. Of course keeping tax-deferral going as long as possible is preferred.
Alright, let's go ahead and tax our next question from Tom
Tom, there is much to consider here. For example, do you need additional $ from your 401k at this time to cover your expenses?
Interesting question Tom, lets think of all sides to this question.
One, you have money invested already in a tax deferred account that will grow over time. You would take the money out because you believe this is the lowest tax bracket you would be in, I am guessing because you will both get social security income in 11 years. We don't really know what taxes will look like in 2024 so I vote on the side of keeping your 401(k) growing tax deferred. Of course if you need the money, then your plan makes sense. You can't overestimate the power of compounding, particularly tax free compoounding
Tom - you may be right about taxes being low and going up, and you are in a pretty sweet spot, being a "senior" and in a low bracket now. Politically, this is a good place to be. However, speculating on what Congress may or may not do with regard to taxes is an exercise in frustration in my experience. You have to attempt to balance out what a future rate would be versus the guaranteed erosion of your withdrawn principal from current taxes. In the words of the old folk adage, "better the Devil you know..."
Alright, ready for our next question from Harry?
Harry - I don't know about the three "best," and one that makes sense to me is to delay taking Social Security for as long as possible, especially if you plan to continue working. SS income is subject to some degree of taxation prior to age 70, and delaying until then gets you an automatic 8% non-taxable raise each year that you delay past your normal full benefit age.
Harry, the manner in which you withdraw your money can be tax effecient. Withdrawing from taxable accounts where capital gains come into play first, then if you have a non-qualified annuity, that can be the second best place to withdraw. Just don't leave all the retirement accounts at the end when you are also taking social security.
Harry, that's a good question, but much of the answer is going to depend on your specific situation. If you have assets in both taxable and tax-deferred accounts then you may be able to manage your taxes through a careful withdrawal strategy between those accounts.
Harry, depending on what your current tax picture looks like you can also consider either contributing to a ROTH IRA or converting some of your existing IRA funds into ROTH IRAs. Distributions in retirements from ROTH accounts can be tax free if you have had the account for at least 5 years. But this is a strategy that has to be considered carefully with your advisor/accountant
Harry - almost all the tax-reduction strategies involve trade-offs - take tax-free money from your Roth and you impact a very good asset to leave your kids; take it from your taxable account and you may give up lower-taxed long-term capital gains. For this and many other reasons, including the old adage "never let the tax-tail wag the investment dog," I suggest counseling with a tax professional or a Certified Financial Planner - www.NAPFA.org
Thanks, Curt. Always great advice
Thanks, planners. A great range of answers
Alright, here's our next round of questions.
Naomi, a portion of your Social Security benefits are taxed depending on how much income you receive from other sources and what your filing status is, i.e., Single, Head of Household, Married filed jointly, Widow, etc.
Bubarley, while I am no expert on this matter, we did have a client who had to pay the higher Medicare premiums for a few years and then had a meaningful drop in his income. He had to call the Social Security office and give them proof of his lower income in order to have his Medicare premium adjusted down.
Bubarley - Your premium will drop back, most likely automatically, and you may want to be pro-active and contact Medicare at the beginning of year three. Every year Medicare send out a letter telling you what your premium will be, and why, based on your IRS filings. In this letter is a contact number to call with questions/disputes.
Alright, here's our next question from Dennis. This is an interesting one!
Dennis, the recently passed tax law retains the 10 percent, 15 percent, 25 percent, and 28 percent income tax brackets from the Bush tax cuts permanently. It also retained the 33 percent and 35 percent income tax brackets from the Bush tax cuts for taxable income under $400,000 (single), $425,000 (head of household), and $450,000 (joint filers) while imposing a 39.6 percent tax rate on income above this level. These thresholds are indexed for inflation and are permanent unless Congress changes the rules in the future. And whether or not Congress changes those rules is anybody's guess....
Dennis, I can't guess what they will be next year and to try to guess what the government will do, what the population will be, what are economy and tax structure will be...holy moly. I can tell you my hope, which is a total overhaul. If nothing happens and we just continue with bracket creep, the tax code would weigh in at "too big to carry". So a total overhaul is only the sane answer.
Guessing time, Dennis!
Given that we must reform taxes and entitlements (Social Security/Medicare, etc,) my best guess is that we will see all brackets go up by two or three percent, deductions go down dramatically, and more people included in the tax base. I suspect that both SS and Medicare will become means-tested to a great degree (the well-off will pay more, see more taxed.)
Sharon, yes, you can claim the home equity line interest even if you used it to buy a llama:) I love the idea of a RV, have a blast.
Annika, you and your husband have hit on an age old question. The answers vary depending on many factors. First money used from discretionary income should be to build and maintain an emergency fund, fund retirement through work, set up college funding and then if you have some money left, make just one extra payment to your mortgage principle. It will reduce the length of the loan but not the payment. Investing money in your mortgage is investing in an illiquid asset and in the short run doesn't help you build for other events that may come sooner.