ira

Submitted by Sandy Rubin on Sun, 2023-07-02 13:36

I have a few ira’s. I know that 403’s should be withdrawn last. what about regular ira’s that are taxed when they are withdrawn. are there any benefit to withdrawing an ira rather than money in a a regular bank account or should I also leave money in ira as long as possible.
thank you



Submitted by Alan - IRA critic on Sun, 2023-07-02 14:45

  • It depends on several factors, including your age, your current tax bracket, and even your estimated future tax bracket. Even the state you live in with respect to creditor protection could be a factor if you expect to have financial problems.
  • Both 403b and IRA accounts are entirely or mostly pre tax, meaning that distributions will be taxed. Some 403b plans have high expenses, and in that case you would withdraw the 403b first or do a direct rollover to an IRA where you can invest in lower cost funds.
  • If you have a Roth IRA, that should generally be tapped last because the gains in a Roth IRA will eventually be tax free with no RMDs.
  • You did not mention taxable investment accounts such as mutual fund or brokerage accounts, so I assume that most of your non retirement funds are in a bank account perhaps earnings very little interest. Keeping money in a bank checking or savings account that you do not need in the next 6 months or so is not a good idea. However, money you have in non retirement accounts has mostly been taxed already, so you can withdraw it tax free. 
  • If you are in an unusally low tax bracket due to high deductions or lower income, and your 403b or IRA balances are large, you can also convert a portion of a 403b or IRA to a Roth IRA. Taxes will be due for conversions, but the Roth IRA will be entirely tax free once it is qualified (5 years and age 59.5). This will also reduce future RMDs because the funds in the Roth are not subject to RMDs and your regular IRA balance that will be subject to RMDs will be lower, and therefore lower RMDs. Conversions are best done in low income years, which are typically between retirement and when you collect SS or pensions and before your RMDs start, as all of these benefits will add to your taxable income and increase your tax rate.
  • Note that if you withdraw from your bank account and the balance becomes low, you may have to withdraw from the 403b or IRA just to replenish your bank account and this amounts to having withdrawn from the IRA in the first place.
  • If you are still working at the 403b sponsor, you may not be able to withdraw or roll over that 403b, also dependent on age. If no longer employed, the 403b is essentially the same as an IRA from a tax standpoint, but may have better creditor protection in some states. 

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