# IRA 70.5 MRD withdrawals

R

#### Reed

Having read an article in today's paper about the timing of IRA
spreadsheet. I have seen some that are basic in nature, but the issue
the article raised was the notion of taking withdrawals "early" to take
advantage of lower tax rates prior to age 70.5. IOW, at ages , say, 65
to 70, if you have some room left before you jump into the next tax
bracket , withdraw enough to maximize the use of the lower bracket.

Does anyone know of a calculator that would help in this issue ??

--reed

J

#### joetaxpayer

Reed said:
Having read an article in today's paper about the timing of IRA
spreadsheet. I have seen some that are basic in nature, but the issue
the article raised was the notion of taking withdrawals "early" to take
advantage of lower tax rates prior to age 70.5. IOW, at ages , say, 65
to 70, if you have some room left before you jump into the next tax
bracket , withdraw enough to maximize the use of the lower bracket.

Does anyone know of a calculator that would help in this issue ??

--reed
I suggest you look at http://www.fairmark.com/refrence/2006reference.htm
a single click to the 2006 tax rates. You don't mention if you are
single or married nor where your income falls. So as an example, looking
at the chart I see that taxable income (i.e. after deductions,
exemptions, etc) of say, \$25,000 for a single person is taxed at 15%.
But you can take income up to \$30,650 and stay in the 15% bracket, so
you would consider taking another \$5,650 in withdrawals to "top off the
bracket." I think this is what you are asking.
My best recommendation is that you take the additional sum and, if you
don't need the spending money, convert it to a Roth Ira. You'll pay the
15% and never be taxed again, not even on the growth. (And if you
mis-calculate, you are permitted to reverse the Roth conversion by April
the year after. An IRA withdrawal has only 60 days to reverse.)

On a side note, if you do not itemize, but if you make charitable
deductions, this year and next you are allowed to take any/all of your
RMD and direct the IRA custodian to cut a check directly to the charity.
In this way, you satisfy the RMD requirement and avoid taking the amount
as income. Of course this only works if you intended to make a year end
contribution, have not taken your RMD, and are unable to itemize.

You understand that a generic spreadsheet would be a bit tough to write.
If only because future standard deductions and exemption amounts are
unknown past 2007. Also such a sheet would have to build in both the tax
rates at all income levels as well as the IRS life expectancy tables.

JOE
JoeTaxpayer.com

H

#### Harry

Reed said:
Having read an article in today's paper about the timing of IRA
spreadsheet. I have seen some that are basic in nature, but the issue the
article raised was the notion of taking withdrawals "early" to take
advantage of lower tax rates prior to age 70.5. IOW, at ages , say, 65 to
70, if you have some room left before you jump into the next tax bracket ,
withdraw enough to maximize the use of the lower bracket.

Does anyone know of a calculator that would help in this issue ??
Try www.dinkytown.com they have many different calculators for retirement
and taxes, nothing specific to your situation. The biggest concern with the
suggestion would be tax on Social Security benefits. If you are receiving
Social Security, extra IRA distributions could cause up to 85% of your
Social Security to be taxed. So you would want to consider that in your
calculations.

Harry

G

#### GJ

Reed said:
Having read an article in today's paper about the timing of IRA
spreadsheet. I have seen some that are basic in nature, but the issue the
article raised was the notion of taking withdrawals "early" to take
advantage of lower tax rates prior to age 70.5. IOW, at ages , say, 65 to
70, if you have some room left before you jump into the next tax bracket ,
withdraw enough to maximize the use of the lower bracket.

Does anyone know of a calculator that would help in this issue ??

--reed
The way I do it is to buy one of the tax program's as soon as they come out
in late Nov. or early Dec., i.e. Tax Cut or Turbo Tax and plug in all of my
numbers. Then I override the Distribution entry until I find what I'm
looking for. This give me plenty of time before the end of the year.

You could probably do the same with last year's file, and do the same with
the Distribution entry. Probably would be very close.

JimW

J

#### joetaxpayer

The way I do it is to buy one of the tax program's as soon as they come out
in late Nov. or early Dec., i.e. Tax Cut or Turbo Tax and plug in all of my
numbers. Then I override the Distribution entry until I find what I'm
looking for. This give me plenty of time before the end of the year.

You could probably do the same with last year's file, and do the same with
the Distribution entry. Probably would be very close.

JimW
I also would recommend http://www.fairmark.com/refrence/index.htm as
this site shows the key numbers, Personal Exemption, Standard Deduction,
and Tax rate chart. IIRC, the 2007 numbers were posted well in advance
of the tax software getting released.
(Don't forget, if the intent is to top off the bracket, but the money
not actually needed for living, the OP may use a Roth comversion, do it
early in the year, and then reconcile at year end, reversing precisely
the ammount over the current rate.)

JOE

R

#### Reed

joetaxpayer said:
I also would recommend http://www.fairmark.com/refrence/index.htm as
this site shows the key numbers, Personal Exemption, Standard Deduction,
and Tax rate chart. IIRC, the 2007 numbers were posted well in advance
of the tax software getting released.
(Don't forget, if the intent is to top off the bracket, but the money
not actually needed for living, the OP may use a Roth comversion, do it
early in the year, and then reconcile at year end, reversing precisely
the ammount over the current rate.)

JOE
Thanks to all for responses. It appears I am "over-thinking" this. Yes
the plan is to "top off" the bracket, with the money not necessarily
required for expenses.

I like the idea of doing a "what-if" 1040 spreadsheet based on actual
income, deductions, etc; then adjust the IRA withdrawal number until
"top-off" occurs.

--Reed