In this Elder Law Minute, Wes Coulson explains how there are better ways of withdrawing money from your IRA.
Hi! I’m Wes Coulson from Coulson Elder Law, proudly serving clients throughout the St. Louis metropolitan area and beyond. I’d like to welcome you to our Elder Law and Estate Planning Minute. We do these to help educate people, give them some little tips, and especially to let them know the questions they need to ask, things that they’ve maybe not thought of. Our thought on that is that we can help you best if you realize the things that you need help and that we can help you with. So I hope you enjoy. Thanks!
First, coming up here soon, Happy St. Patrick’s Day to those of you who are Irish or, at least, pretend that day to be Irish, as I do. I want to tell you today why I’m going to mention that your IRA withdrawal strategy is wrong. What most people have learned to do is to only take out the required minimum distribution; just, you know, if you have to pay tax on it, just hold off for as long as possible. That’s just wrong for several reasons.
First, in another video I talked about, in a Medicaid context, having this big ol’ IRA that you have to get rid of all at once at the time somebody goes into the nursing home. Well, have you taken out more in some previous years at a lower tax bracket you wouldn’t have to be taking out a whole bunch at the time of nursing home admission. But, throwing nursing home admission out of the picture, and taking out only the required minimum distribution is still a bad strategy and here’s why.
For married couples, if, when the first one dies, the second one gets the IRA. Now they have two people’s IRAs, or retirement assets, to take withdrawals out of, but an exemption amount and tax brackets that are only half as big, which means you double the chances of some having to be taken out at a higher rate. Beyond that, before January 01, 2020, your kids used to be able to take stretch IRAs, so take the money out over the course of the rest of their lifetime; Congress did away with that under a law called the Secure Act and now beneficiaries have until the end of the tenth year after the original IRA holder dies in which to take out all of that money. It wasn’t lost on Congress that the time that most people are going to have to take it out,generally coincides with the time from their mid-50’s to their mid-60’s that, for most people, is their peak earning years.
So, long of the short of it, is that a lot of people, maybe including you, are deferring past the chance to take out money from IRAs at a very low tax rate, in favor of waiting for that money to be taken out at a much higher tax rate. That’s not a good strategy, you should talk to your tax advisor and come up with something better. Thanks!
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Dent-Coulson Elder Law is dedicated to providing families in the St. Louis area with their Elder Law needs. Our practice areas include Asset Preservation Planning, Veterans Benefits, Medicaid Eligibility, Alzheimer’s Planning, Special Needs Planning, Estate Planning and more. We understand the financial challenges you may face as you and your loved ones grow older. At Dent-Coulson Elder Law, our clients’ well-being is our number one priority. For immediate help, call (618) 632-7000 (IL) or (314) 567-9292 (MO), or Contact Us and we will get in touch as soon as possible.