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Financial Planning / Foolish 401(k)s


Subject:  Re: 403b Required Distributions Date:  9/23/2012  2:24 PM
Author:  pauleckler Number:  24942 of 26303

The best most of us can do is take distributions in low income/low tax years if you will have any or spread them over as many years as possible to avoid getting pushed into a higher tax bracket.

When she retires, you will want to look at her income changes and deductions. Some have pension income that replaces earned income causing no change in income tax rates. Others see income decline and may have lower tax rates. Many have lower income requirements as they no longer pay into savings and retirement programs. Some are in position to take income from IRAs or similar programs. Then you can adjust income to match expenses, which can reduce your taxable income and your tax rate. One size does not fit all.

If mandatory distributions would push you into a higher tax bracket you can consider reducing taxable income with charitable contributions. Many charities have charitable remainder trusts where you make a partially deductible contribution to the trust and the trust pays you regular payments for life. The deductibility of the contribution is based on your life expectancy when you make the contribution.

There are probably other similar plans, but ultimately, the bottom line is mandatory distributions forces you to pay income taxes on the funds. And generally either you pay taxes or give it away.
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