Taking Cash Out Of IRA
REM #F651
By Ilyce R. Glink
Summary: A reader wonders if his retired brother can take money out of his IRA tax free. Ilyce suggests that since the brother's income is so low, his tax burden will be nominal.
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, or check out www.reverse.org.
I would also suggest talking to a tax preparer or accountant for information
on how the IRA withdrawals would affect your brother's taxes.
NOTE: This column is distributed by Real Estate Matters Syndicate, PO Box 366, Glencoe, Illinois, 60022. This column may not be resold, reprinted, resyndicated or redistributed without written permission from the publisher.
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Ask Ilyce - June 7, 2005
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