[rank_math_breadcrumb]

News

How Should I Structure My Withdrawals? My Dad Left Me $450k in an IRA, and. I’m in the 32% Tax Bracket

Updated: 04-11-2024, 01.50 PM

There are a couple of different sets of rules around inherited IRAs and you’re subject to the
least flexible. While there are more options for a spouse or someone who’s chronically ill or
disabled, a minor child, or someone not more than 10 years younger than the deceased IRA
owner, you have just 10 years to withdraw the money.

Typically, heirs open their own IRA Beneficiary Distribution Account, which must be closed by
Dec. 31 of the tenth year after the original IRA owner passed. But even with that deadline, you’ve still got a few choices to make – and rules to understand.

Consider matching with a financial advisor to discuss tax mitigation strategies.

Someone in the 32% tax bracket is earning between $191,950 and $243,725
in taxable income if they’re single, so withdrawing the entire $450,000 now will push you
solidly past the 35% tax bracket and into 37% bracket beyond an adjusted gross income of $609,350. While your exact liability you would pay depend on your income and other factors, you can expect your withdrawals to be taxed completely at the highest two tiers.

If you’re married and filing jointly, the 37% bracket comes into play when your taxable income is
more than $731,200 or more. Being at the 32% tax bracket now, this means that this strategy is less advantageous than someone who is filing single. Based on the disproportionate income thresholds, a higher proportion of the withdrawals will be subject to the 37% tax rate.

Pros:

  • You take the tax hit now and can invest the remaining roughly $300,000 in any way you choose.

  • If you put the money in long-term investments, you can take the lower long-term capital gains tax
    rate, which ranges from 20% to 0%, depending on your income, which lowers the effective tax
    rate on the money in the long run. Based on your income now, you’re likely to face a 15%
    long-term tax rate.

Cons:

  • Right off the bat, you’d be sending an additional money to the IRS. You also
    sacrifice 10 years of potential tax-deferred growth within the IRA.

  • You can force yourself into a higher tax bracket.

On the other end of the spectrum, you can opt to draw your payments out over the full length of time allowed, or find somewhere in between the two. Consider matching with a financial advisor for free to discuss the best option for you.

The longer approach means spreading your withdrawals out to keep your tax bracket and tax liabilities down. While any growth of your account will be tax-deferred in the meantime, those gains will also be taxed at your marginal income tax rate when you do eventually withdraw them.

Leave a Comment

Design by proseoblogger