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Author: TMFTaxes Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 121219  
Subject: Re: IRA Rollover - tax liability Date: 1/12/1999 8:17 PM
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[[ My father passed away in June.]]

Sorry to hear about the passing of your father, Michael. I'm sorry for your loss.

[[ I changed his variable annuity into a beneficial
IRA. I have to liquidate within 5 years. The distribution is considered ordinary
income.]]

That is basically correct. I'm assuming that his original annuity was also in the IRA, or I'm not sure quite how you handled this. But let's move on.

[[ My questions: I am planning on moving this money to another company,
Vanguard, for example, bec. the company it's with now charges high expense
ratios and the return is low for someone with my time horizon.]]

The problem is that you time horizon is either the 5 year period that you note, or over your life expectancy (based upon IRS tables). This assumes that you father was not already taking minimum required distributions. If he was, then all of the rules change and you may have to take the funds out faster than you really want to.

[[ Do you think it's better to liquidate evenly over 5 years keeping my tax rate in
28%, and putting the money long with the intent of lower capital gains. Or, do I
let it grow tax deferred, with eventually having it all become ordinary income.]]

Without knowing more about YOUR specific situation, it's just impossible to give you that information. You'll certainly pay more in taxes (everything else being equal) by waiting until the very end to cash out the account. Or, you can even take the funds out over your life, pay no penalties, and have it grow tax deferred for an even LONGER period of time. It could be HUGE by then.

Will you pay more in taxes...possibly. But it still may be a pretty good way to go...especially if you don't need the funds currently.

But again, without knowing more about you and your tax issues, I can't really make the call for you.

[[ Has anyone been in this situation? ]]

I have clients in this very situation every day. But I know much more about them and their personal tax issues, and can be more helpful in advising them.

TMF Taxes
Roy

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