It is important for clients to remember that when taking out distributions from their IRAs, the income received will be applied to their total taxable income, often pushing them into a higher tax bracket. In a lot of cases a client may be in a lower tax bracket before taking their distribution. Taking the distribution money then pushes them into a higher tax bracket. It is always a smart idea to consult your tax advisor prior to making any decisions regarding IRA distributions. Another significant point to remember is that any distribution taken before age 70 ½ will have a 10% tax penalty from the IRS.
In some cases, a Required Minimum Distribution (RMD) can be paid out in fixed installments. RMDs are minimum amounts that a retirement plan account owner must withdraw annually starting with the year that he or she reaches 70 ½ years of age. This method of fixed installments makes it easier to spread out the taxes owed on a distribution. The IRS considers IRAs to be tax qualified savings accounts. Be sure to consider the tax impact before tapping into retirement accounts for short-term financial emergencies.
For more information on the IRS and assistance, go to www.irs.gov.
At Newsad Insurance Services we believe in helping our clients make these important decisions. Please visit www.newsadinsurance.com for more information.
Agent, Newsad Insurance Services