I am 65 years old and at the absolute peak of my income. I am also on the 35% tax rate and have no plans to retire anytime soon. I need $30,000 for a home project. I have enough funds to withdraw from my non-qualifying brokerage account, but I will be paying capital gains tax on what I liquidate. We believe the Roth IRA is the best place to receive it so as not to increase taxes. I’m not thinking about a mortgage because I need cash immediately. If I say no to Roth withdrawal now, when is the best time to withdraw from the Roth IRA? Our children are wealthy and don’t need it as a future legacy.
-Joseph
Minimizing the tax impact of this individual project is important, but it’s not the only consideration when deciding which account to fund.
Before use Ross IRA It is also important to consider long-term taxes and taxes in order to minimize the short-term tax burden and cover the cost of the project. financial planning The impact and timing of withdrawals from each account.
Your question applies to most taxpayers, so I can answer generally, but I caution you that it is best practice to consult a tax professional who is familiar with the tax landscape. (Also, consider matching with an expert if you need further help with your tax strategy. financial adviser Those who have tax expertise)
Investigate your tax status
As you point out, I am over the age of 59 and a half, so withdrawing funds from a Roth IRA will not have immediate tax implications.because you are in 35% of the income Tax classificationthe fee to pay capital gains tax The tax from the tax brokerage account will be 15% or 20% depending on your tax filing status (married and joint filing, single or head of household) and actual income.
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While it may seem safe to assume that the tax rate will be lower after retirement with no income from employment, I’d be careful with this assumption. The current income tax rate, which is set to expire at the end of 2025, is relatively low by historical standards.
Consider taxable withdrawals
Overall, if you are not close to the 35% income tax cap and may face 15% capital gains tax, brokerage account You can withdraw while you have income to cover your current taxes.
In addition, although looking at the total amount of your brokerage account may indicate that you are liable to pay capital gains tax on withdrawals, you should review and consider the individual holdings within your account. loss recovery chance.
Given the volatile market conditions and the fact that most asset classes experienced drawdowns in 2022, it is possible that some holdings were worth less than their original prices. cost basis, depending on what you own and how long you have owned it. In that case, you can reduce your taxes by selling some of the depreciated assets and offsetting that realized loss against capital gains elsewhere in your account.
If loss recovery is not an option, another strategy is: Gift securities to charity. By doing so, you can avoid paying capital gains tax and benefit from a tax credit equal to the full market value of the gifted property. The tax savings from this approach help offset the tax burden associated with liquidating part of the housing project’s tax account. (Also, consider working with a professional if you need help recovering tax losses or donating securities to charity. financial adviser. )
Purpose of the Roth IRA
So if the Roth IRA provides a tax-exempt source of funds, why should we pay taxes on withdrawals from taxable accounts? Generally speaking, that would defeat the purpose of the Roth IRA. It’s from
A Roth IRA is designed to provide tax-free income. retirement, is not a tax-exempt general purpose funding source. Unless you expect to receive a pension or passive income after retirement, your main sources of income will likely be: social security Also your savings, including the Roth IRA. Therefore, given the information you provided about your situation, it would not be wise to utilize a Roth IRA until retirement, even if preserving its value for future generations is not your primary consideration. I believe.
Roth IRA Contribution Limits Already a relatively low amount and above the income threshold to donate, you can only donate in the following ways: Backdoor contribution. Withdrawing valuable funds from the Roth IRA before retirement reduces your ability to harness the power of the Roth IRA. Keeping his $30,000 in the Roth IRA compounded tax-free will make retirement savings more valuable than accumulating taxable gains on funds in a non-qualified brokerage account. (If you want to learn more about managing your retirement account, consider: Matching with financial advisors. )
Conclusion
On the surface, it may seem ideal to withdraw money from eligible accounts to minimize your current tax bill. However, you should consider the long-term tax implications of your withdrawal sequence and evaluate the purpose each account serves in your overall financial planning. When it comes to taxes, there are no one-size-fits-all recommendations. work with experts You are more likely to get the best results. Tackling home improvement projects and large expenditures this way will give you the best results for your financial goals.
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Consider several advisors before committing to one. Finding someone you trust to manage your money is important. Considering your options, These are the questions you should ask An advisor to help you make the right choices.
Lorraine Montagny, CFP®, AIF®, He is a columnist for SmartAsset Financial Planning, answering reader questions on personal finance topics. Have a question you want answered? Send an email to AskAnAdvisor@smartasset.com. Your question may be answered in a future column.
Lorraine is a Senior Retirement Planning Advisor at DBR & CO. She has been paid for this article. Additional resources by the author can be found at: dbroot.com.
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post Ask your advisor: I’m 65 years old, my income is at “absolute peak” and I’m not retiring anytime soon. Should a Roth IRA be used for a $30,000 home improvement project? first appeared in SmartAsset Blog.
