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2 years ago my accountant suggested I put some $ into an IRA, it helped me pay less federal income tax.
I was told once I reached 65 I could remove it with no penalty. Now I am 66 and when I went to close the account, the bank told me I'd have to pay taxes on it, at the same rate as I would have been taxed when I opened it.
I have a call in to my accountant to ask if this is correct, but from people I've talked to, this does seem to be the case.
So what I am wondering - why would anyone put $ in an IRA? It seems it is just postponing the tax-paying.
unless there are other uses to an IRA.
Withdrawals are supposed to be able to be withdrawn at your retirement age at the tax rate relevent to your current income.
It was probably 65 when you were first told that.
The idea is that the tax bracket you are in will be lower than when you were working.(Not true for all,obviously)
Is 66 that age for you?
What year were you born?
To qualify at 66 you would have had to be born before 1954.
Here's a chart showing when that date is Retirement Planner: Full Retirement Age
2 years ago my accountant suggested I put some $ into an IRA, it helped me pay less federal income tax.
I was told once I reached 65 I could remove it with no penalty. Now I am 66 and when I went to close the account, the bank told me I'd have to pay taxes on it, at the same rate as I would have been taxed when I opened it.
I have a call in to my accountant to ask if this is correct, but from people I've talked to, this does seem to be the case.
So what I am wondering - why would anyone put $ in an IRA? It seems it is just postponing the tax-paying.
unless there are other uses to an IRA.
ellen
I am sure some other's will chime in but I believe that if you are still earning an income this IRA will be lumped into that. You will need to pay taxes on it but hopefully your income has come down some. That should lower that and you should be able to get some of that back tax time.
Usually people take that out in incriments so that the tax is still spread out. The idea is that earnings are tax deferred and grow that way.
Do not forget you can never add to your IRA with money that is not documented as earned income. The only way to get tax breaks from an IRA is for you to be working. People selling IRAs dont mention this for some reason. I cry fowl!!!!
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That is the whole idea, defer the taxes until you withdraw, and pay less because you are earning less. When it comes to the IRS, there is no free lunch.
2 years ago my accountant suggested I put some $ into an IRA, it helped me pay less federal income tax.
I was told once I reached 65 I could remove it with no penalty. Now I am 66 and when I went to close the account, the bank told me I'd have to pay taxes on it, at the same rate as I would have been taxed when I opened it.
I have a call in to my accountant to ask if this is correct, but from people I've talked to, this does seem to be the case.
So what I am wondering - why would anyone put $ in an IRA? It seems it is just postponing the tax-paying.
unless there are other uses to an IRA.
ellen
Assuming you're talking about a regular IRA and not a Roth IRA - you do have to pay a tax penalty if you do withdrawals before age 59 1/2 (with some exceptions). After age 59 1/2 - when you do withdrawals - the money is ordinary income and added to any other taxable income you have in terms of figuring out how much tax you have to pay. At age 70 1/2 - you must take required minimum distributions (which - again - will be taken into account in terms of figuring your taxable income).
Unless you have a particular reason to take all of the money out now - I wouldn't do that. Robyn
Robyns post mentioning 59 1/2 just triggered my ever-increasingly faulty memory and made me realize how embarassed I should be for the ' informative post' I made earlier
(You gotta admit....it sounded like I knew what I was talking about if you didn't know better)
Assuming you're talking about a regular IRA and not a Roth IRA - you do have to pay a tax penalty if you do withdrawals before age 59 1/2 (with some exceptions). After age 59 1/2 - when you do withdrawals - the money is ordinary income and added to any other taxable income you have in terms of figuring out how much tax you have to pay. At age 70 1/2 - you must take required minimum distributions (which - again - will be taken into account in terms of figuring your taxable income).
Unless you have a particular reason to take all of the money out now - I wouldn't do that. Robyn
I agree if she dont need the money she should keep it in until her income goes down. She did say she is 66 now so she will not need to worry about the penalty. To the OP if this is the only IRA, 401k, Keough, SEP or other retirement savings accounts (not counting Roth IRA's) then I would probably take it out just at age 70 1/2 or so. I am guessing that you made only a few contributions to it so and forgive me for assuming this that the amount in the fund is not 6 figures. If it is then my assumption is wrong and you will want to take it out in increments.
You started an IRA at 64 and want to take it out at 66?
A 2 year IRA really doesn't give you any benefits to speak of... waste of time.
The benefit of an IRA over 30 or 40 years is that you accumulate earnings, interest and dividends, that are not taxed when earned. That means a larger portion added every year allowing for greater accumulation. Historically there has also been the benefit of high taxes 30 years ago compared to today, thanks to the fiscal incompetence of the Bush-Obama cabal.
Let it lay where it is until you reach 70.5 and take it out in minimum dribbles, starting like 4% a year, unless you desperately need it.
You can move it to a stock fund if you choose or even to a self directed brokerage account IRA.
You don't have to take it out now, although you can without penalty.
but the bank said it would be taxed at the same rate as when I opened the account.
which doesn't make any sense, then it is just postponing.
I guess for me, I was retired when I opened the ira, so perhaps that is why it was not a very useful move.
Quote:
Originally Posted by Hemlock140
That is the whole idea, defer the taxes until you withdraw, and pay less because you are earning less. When it comes to the IRS, there is no free lunch.
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that's what I thot
