Question
I have a question relative to taxes on IRA distribution during retirement.
I retired in January 1998. I was 69 years old. I worked for a large company. My salary was about 100,000 a year. Upon retirement, my pension and Social Security payment, and my wife’s Social Security payment, began.
The company asked me to stay on as a contract employee for a few months to write engineering procedures. My salary remained the same. That job last lasted 11 years.
Based on what little I knew about the Roth IRA, I did not choose a Roth IRA. My understanding was that I would have to pay income tax on the full amount rolled over based on my total income at that time (pension, Social Security, plus the contract salary). My 401(k) was about $250,000.
I thought that it would be better to use a regular IRA. Even though I would be paying income tax in the future with each required minimum distribution (RMD), I figured that once my extra income from my contract job ended, the tax percentage would be less.
What is your opinion?
Answer
“I realize it’s easy to look in the rearview mirror and regret certain decisions when it comes to finances,” says Timothy Kenney, CFP®, founder of Seawise Financial, Inc., and feel “If I only put money in Tesla I’d be a millionaire by now!”
“I believe the reader probably made the right decision at the time as they believed the position was temporary and their income tax situation would be going down, Kenney says. Knowing what they know now, having that job last well beyond what they thought (as well as after RMD age), Roth contributions may have been the way to go.
“I believe the main benefit of making Roth contributions in later years is the fact that they have no RMD requirements,” he says. Both traditional and Roth IRAs allow for tax-free growth, but an individual will still have an RMD requirement from a traditional IRA.
“You could be in a situation where you put money into a traditional IRA while taking money out via an RMD at the same time,” notes Kenney. From a pure flexibility standpoint, and the ability to either take a lump sum out of the account tax-free or use it as an estate planning tool (beneficiaries inherit and can withdraw tax-free), Roth IRA’s are great, he adds.
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Question
I have a question relative to taxes on IRA distribution during retirement.
I retired in January 1998. I was 69 years old. I worked for a large company. My salary was about 100,000 a year. Upon retirement, my pension and Social Security payment, and my wife’s Social Security payment, began. Subscribe for full article
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