The Motley Fool Discussion Boards

Previous Page

Investing/Strategies / Retirement Investing


Subject:  Re: Taxable Income in an IRA Not Necessarily Bad Date:  1/18/2009  1:18 PM
Author:  Fuskie Number:  65153 of 90819

A couple of comments. First, while it is true that a lower AGI results in a lower tax rate on your retirement distributions which are counted as income, it is more likely that if your itemized deductions exceeds your default standard default deduction, then you will be able to negate the impact of your retirement income. In other words, if you are still paying mortgage interest, paying full price for your health expenses, have capital gains losses in retail accounts, give a lot of money to charity, these are all factors that can offset income and lower your AGI.

Second, it is important to plan for those required retirement distributions from tax deferred accounts just as it is important to plan for when you might be subject to the Alternative Minimum Tax (AMT). A few years ago, DF was hit with a double whammy. His required IRA distributions unexpectedly triggered the AMT on this tax returns and he found himself with a larger tax liability than planned.

One option if you still have earned income in addition to these required distributions is to transfer the money into a Roth IRA. Now this does not help you avoid the tax liability, but if you do not need the income (since you are still earning money), you can at least plug it back into savings and avoid tax liability on future gains. I have not tried this myself, nor has DF as he no longer has earned income, but I think its a legit option.

Who thinks there are many lessons we younger Fools can learn from our more senior Fools...
Copyright 1996-2018 trademark and the "Fool" logo is a trademark of The Motley Fool, Inc. Contact Us