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401K Withdrawals

Started by Old Tusk, July 12, 2009, 11:23:23 pm

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Old Tusk

July 12, 2009, 11:23:23 pm
I'm seven years from mandatory withdrawals. I don't have any need for the money. Should I start now to spread the tax burden or bet I won't live that long? Seriously, any advice on the problem?
The Democrats are the party that says government can make you richer, smarter, taller and get the crabgrass out of our lawn. Republicans are the party that says government doesn't work, and then they get elected and prove it....P.J. O'Rourke

Ash

July 13, 2009, 08:22:50 am #1
If you don't need the money I wouldn't touch it until I had to. Otherwise I think you would be exposing yourself to unneccessary taxes.
 

OakTreeHawg

July 13, 2009, 08:43:04 am #2
Unless it has changed recently, you can give to a charity FROM THE 401k and pay no capital gains AND get the charitable deduction.  Replace what you give now and you have extra money with no tax implications.

SultanofSwine

July 13, 2009, 08:47:53 am #3
If you are fully retired an do not need the funds in your 401k, first let me say congrats!!! If the funds are still in the 401k plan my first thought would be to take a serious look at rolling over to an IRA. Since you say you have no need for the funds, I assume you already have substantial non-qualified accounts that are supplementing your income needs. 2 things come to mind there if the funds are rolled to an IRA, first consider doing a Roth conversion on a portion of the account to create some future tax free income and second work with your advisor and accountant to calculate the amount of qualified money you can withdraw each year from the qualified account without bumping you into the higest SS tax rate if you are not already there.

There are lots of other issues I would want to explore in your situation but dont have the time to get into here.

Old Tusk

July 13, 2009, 04:28:18 pm #4
It appears avoiding income tax is not an option. What is the advantage of rolling it into an IRA?
The Democrats are the party that says government can make you richer, smarter, taller and get the crabgrass out of our lawn. Republicans are the party that says government doesn't work, and then they get elected and prove it....P.J. O'Rourke

BlackKnightHogFan

July 13, 2009, 05:46:56 pm #5
Quote from: Old Tusk on July 13, 2009, 04:28:18 pm
It appears avoiding income tax is not an option. What is the advantage of rolling it into an IRA?

Talk to your CPA or your broker.  There is a tax code coming in 2010, unless there is a change, that you may benefit from if you want to convert from a traditional to a Roth IRA.  Depending on your situation and your tax issues it may be of interest to you.  Oh, and Tusk thanks for the kind words in the other thread.  Sorry for being impetuous.
Upon the fields of friendly strife are sown the seeds that upon other fields; on other days, will bear the fruits of victory.  -Douglas MacArthur

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Road_Hog

July 13, 2009, 09:56:59 pm #6
Quote from: BlackKnightHogFan on July 13, 2009, 05:46:56 pm
Talk to your CPA or your broker.  There is a tax code coming in 2010, unless there is a change, that you may benefit from if you want to convert from a traditional to a Roth IRA.  Depending on your situation and your tax issues it may be of interest to you.  Oh, and Tusk thanks for the kind words in the other thread.  Sorry for being impetuous.

It was mentioned to me about something along the lines of a tax-free conversion in 2010 by the guy at Merrill on the phone.  Of course, he gave all of his disclaimers.  I'd like to hear more about this.

Old Tusk

July 13, 2009, 10:33:04 pm #7
The 2010 change is very interesting. Thanks !
The Democrats are the party that says government can make you richer, smarter, taller and get the crabgrass out of our lawn. Republicans are the party that says government doesn't work, and then they get elected and prove it....P.J. O'Rourke

SultanofSwine

July 14, 2009, 08:43:33 am #8
Currently, there are income limits on who can convert a traditional IRA to a Roth IRA. In 2010, there are no income limitations as the law reads right now. Making the conversion requires that you pay the income tax due on the amount converted, however if the conversion is done in 2010, you will have the ability to pay half the tax in 2010 and half in 2011. Once the conversion is complete, distributions from the Roth account will be income tax free including all subsequent earnings.

If someone has a substantial amount of non-roth qualified money making such a conversion may make sense. However, that person should work closely with thier advisor and accountant in making sure they understand the tax implications. It might also help if the person has some income flexibility so they can reduce non-conversion taxable income in the year of conversion to help offset the total tax liability.

Like everything else, this is just another planning tool. It may or may not be feasible for each individual.

SpringTxHOG

July 17, 2009, 04:31:32 pm #9
Old Tusk,

You are right...there is no benefit to moving the account...Uncle Sam is gonna get their taxes...regardless of 401k distribution, IRA, or Roth conversion.  You are sitting on a self-liquidating tax account, made payable to the IRS.  The only way to not pay all the tax(es) on the account is to get creative with insurance...you have to be in relatively good health to do so.  Blacknight somewhat touched on it...work with your accountant and financial planner...they will put together a plan that helps you keep you dough.

Good luck
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