to withdraw extra money — from IRA or from Roth?
My wife and I are 71 & 72 respectively. We both work part time and deposit the entire amounts (less taxes) into our 401k’s (saves on taxes). For money to supplement our social security we rely mostly on our RMD’s (and pay taxes on these amounts). We would like to withdraw more than our RMD’s for extra income needs, keeping money out of the market (don’t want it in moneymarket acct), for and future planning. If we withdraw more from our IRA’s we’ll pay more taxes. If we withdraw the extra from our Roth’s no taxes, but… What are the advantages/disadvantages of withdrawing from our Roth’s vs our IRA’s? Is there a clear, better choice? Thanks. James H.
Permalink Submitted by Alan - IRA critic on Mon, 2013-03-04 04:22
Normally, you would not draw on your Roths since earnings grow tax free. However, your taxable income is higher now since you still working and taking SS plus your RMDs. Roth withdrawals should be tax free as you indicated. But you can also split the distributions, for example, using your TIRA up to the top of your current bracket and the Roth for the additional amount. That prevents you from entering the next higher bracket. How much of your SS is taxable is also a key, because if less than 85% of your SS is being taxed, every additional dollar taken out of a TIRA results in more of your SS being taxed. In summary, to make this decision you would have to do some tax modeling to determine how much of your SS is being taxed, and if it is, how far are you from the 25% bracket?