Returning funds to IRA after retirement

Submitted by Mark Guagliardo on Sun, 2024-06-30 12:15

I am 67 and retired but have not begun withdrawals from my well-funded traditional IRA. We own our home outright – no mortgage. We need a new car, but don’t have the cash for it. What’s the best strategy for buying this car? I have considered a home equity loan and car loans. But those would be paid back with IRA withdrawals anyway. Why not withdraw the full purchase price of the car from the IRA? I would the buy the car, then sell our old car on my own and return the proceeds from that sale to the IRA. If I sold our old car first we would be without a car and under pressure at the dealership to move faster than I am comfortable doing.

1. Is this my best strategy versus other types of loans?
2. Can I deposit the used car proceeds into the IRA?



Submitted by Alan - IRA critic on Sun, 2024-06-30 15:15

It sounds like you need the car before loan interest rates will come down, but the tax rate you will owe on the IRA distribution that you do not roll back is unknown, but if 85% of your SS benefit is not already included in your taxable income, the IRA distribution would result in more SS being taxable in addition to tax on the IRA distribution itself.

Also, auto insurance rates are massively higher than a couple years ago, and your collision and comp premiums for the new car will be based on that car’s much higher value. You may not even be carrying these coverages on an older car. In most states your registration fee will also reflect the high value of the new car, so you may need to come up with more than just the car purchase price with sales taxes to fund the total increased price.

To complete a rollover of the amount you received from the old car sale, you must return the amount within 60 days of receiving the distribution, AND you cannot have a done a prior 60 day rollover of any amount you received in the 12 months prior to the new distribution.

Submitted by Mark Guagliardo on Mon, 2024-07-01 19:26

We are well above the cutoff of income where 85% of SS is taxed. We are in the 22% tax bracket. The income tax on the IRA withdrawal will not put us in the next highest bracket. I got a quote from our insurer, USAA, for switching the new vehicle in for the old one and was pleasantly surprised that our premium won’t increase much. Perhaps it is because the new vehicle has more safety features than our 15-yr old car, which is fully insured.
“To complete a rollover of the amount you received from the old car sale, you must return the amount within 60 days of receiving the distribution, AND you cannot have a done a prior 60 day rollover of any amount you received in the 12 months prior to the new distribution.”  THANK YOU. This confirms what I have read elsewhere, but the wording in the other places was directed towards non-retired persons. It applies to us retirees as well?
My rationale for doing it this way is that no matter how we get the money to buy the new car – car loan or whatever – we are going to make the payments by tapping into my IRA. Why not just pull the full price out and pay cash for the car?

Submitted by Alan - IRA critic on Mon, 2024-07-01 20:58

Given the total picture, there is no reason not to take a distribution large enough to purchase the car. The rollover rules apply regardless of being retired or not.

Submitted by Mark Guagliardo on Mon, 2024-07-01 21:01

Thank you. I really appreciate your time.

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