Q: My older brother is 69 and a resident of Florida. He is retired and his only income is Social Security of $1,200 per month. He has $41,000.00 in an IRA.
He wants to take cash out of the IRA but minimize the tax consequences of such a move. What is the best strategy for him?
A: In your brother’s case, the good news is also the bad news. Your brother’s taxes would likely be nominal because his income is so low. He could probably take out $100 to $200 per month, and the taxes he would pay (if any) would be small because his income would still be so low. Depending on how much he has to withdraw from his IRA, while he might pay a small tax on his IRA withdrawals, his income may fall below the threshold that would cause his Social Security payments to be taxed.
If he needs a little more cash to live on, he may be a good candidate for a “reverse mortgage,” which would allow him to have a lump sum or a lifetime stream of income each month that would be tax free.
You can get a reverse mortgage if you’re 62 years or age or older and own your own home mortgage-free or nearly mortgage-free. The loan is paid back after the home is sold.
Talk to a qualified mortgage lender about a reverse mortgage. I would also suggest talking to a tax preparer or accountant for information on how the IRA withdrawals would affect your brother’s taxes.
Published: Jun 10, 2005