After-tax distributions
Husband and wife each have $29K in after-tax contributions in IRA’s. Wife’s IRA is substiantially smaller – less than $100k and husband’s is over $1M. They need to take money for living expenses – is it better to take as much as they need from the wife’s IRA first since the “cream in the coffee” rule would make it less of taxable burden?
Permalink Submitted by Alan Spross on Tue, 2009-01-13 20:47
Generally that is true, and also applies to Roth conversions if one spouse has a much higher % of basis in their TIRA, and they are concerned with a lower current year tax burden.
If they are in a low bracket in the current year, and have high RMDs on the horizon when tax rates may be higher, then from a longer term perspective, they may be better off realizing more taxable income in the current year.
Permalink Submitted by charles lore on Sun, 2009-01-18 05:16
If either one has an active qualified plan they can perform a “basis”ectomy
They simply roll over ( direct rollover) all the pre tax funds from the ira to the plan which leaves just the basis. Now they can with draw the basis w/o tax… or if eligible do a Roth conversion.