401a rollover to an IRA
We have a client who is mid 40s and just left employer who offered a 401A, non covered for SS. She has approx 400k in her acct. She will be starting employment with new employer who is offering a 401k. She plans to work several years and assuming will qualify for SS.
if this client rolls the 401A into IRA today
1 – how does this affect her SS benefit down the road once she begins taking her benefit?
2 – Does it matter if she begins distributions at 59 1/2, before SS ?
3 – what if she sets up full distributions before taking SS and IRA acct no longer exists?
Permalink Submitted by Alan - IRA critic on Thu, 2021-04-08 16:53
IRA RMDs can increase the amount of SS included in AGI, but in 25 years only the lowest incomes will avoid this because the incomes subject to tax on SS are not inflation adjusted.
Any IRA distributions taken before SS benefits begin (max age 70), will reduce the amount left in the IRA to generate income that will trigger SS taxation.
If the IRA is fully distributed before SS benefits begin, RMDs will not exist. Of course, if those distributions are saved, the investment income from other assets will increase. Generally, it is not beneficial to distribute IRAs early to avoid SS taxes unless the IRA is converted to Roth. Qualified Roth distributions have no effect on SS taxation.