Consequences of liquidating an ira

If rates are higher in the future, it’s better to have converted now to a Roth; if rates are lower in the future, it’s better to simply keep the traditional IRA, wait, and pay the taxes in the future when the rates are lower.

For those who are working, the decision about whether to contribute to a traditional or Roth IRA often becomes an evaluation of current marginal tax rates (on top of wages and any other income) versus what that marginal rate will likely be in retirement (when wages are gone, but a pension, Social Security, or other income may be present).

Remember, an amount exceeding the RMD can be withdrawn at any time.

The second option is for an heir who doesn’t intend to use the long-term tax deferral of the IRA.

The way to take advantage of this provision is for you to name both primary and contingent beneficiaries.

The second option does not include a five-year rule.

However, if the reality is that the beneficiary’s tax rates are actually lower – perhaps because the original IRA owner’s wealth is being spread across multiple beneficiaries, because the beneficiary simply has less income and assets, or maybe just due to the fact that the beneficiary lives in a different state that has a lower tax rate – then the best thing a (higher-income) IRA owner can do is simply to leave a traditional IRA to the beneficiary and let the beneficiary pay the taxes at his/her own lower tax rates!

Michael Kitces is a Partner and the Director of Wealth Management for Pinnacle Advisory Group, a private wealth management firm located in Columbia, Maryland that oversees approximately .0 billion of client assets.

The second option is to distribute 100% of the inherited IRA to the beneficiary by the end of the fifth year following the year of the original owner’s death.

The distributions can be taken on any schedule the heir wants.

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Instead, the heir can continue the original distribution schedule using what would have been the age and life expectancy of the deceased owner.

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