Thursday, September 19, 2019 6:36:31 PM
If you are trading from an IRA account (traditional tax deferred or ROTH tax free), no need to mess with tracking trades, wash sales, etc. Only tax is when you take a distribution from the traditional, tax deferred IRA, and no need to worry about the trades in it. Just pay tax on the amount taken out.
Of course you have to be 59 1/2 before you can withdraw from an IRA. And.... when you reach 70 1/2 there is a RMD (Required Minimum Distribution) you MUST take each year from the traditional tax deferred IRA.
No limits or conditions on the ROTH tax free IRA, other than the 59 1/2 years of age and you cannot withdraw from ROTH until 5 years after your first ROTH account was created.
You can rollover a 401K to an IRA. No tax on rollover to a traditional tax deferred IRA, but add amount of rollover to ROTH account to your taxable income that year --- OUCH.
You can also convert shares and/or cash in a traditional tax deferred IRA to a ROTH tax free IRA. Again add the converted amount to your other taxable income for that year, and if it is your first, newly created ROTH IRA, you must wait 5 years before any withdrawal.
While I am at it a couple other retirement gotchas you don't usually realize until you been there.
Social Security income is tax free, only up to a certain level of taxable income. For fairly low income folks, once they reach a certain level income they start paying tax on 85% of the social security as well. So in essence instead of paying just 10 or 12 percent tax on the other taxable income, they then have to pay tax on the social security income which means they are paying almost double the tax than if they stay below that income level.
And, if you take Medicare part B and D, your premiums go up a lot if your taxable income from two years ago is big. Instead of paying about $160 per month, the cost can run up to $600 or more per month. This is calculated each year using the AGI fro 2 years ago. The increase begins when AGI reaches $85,000 a year. Another reason to get your money into a ROTH IRA. They get you either way --- pay tax now to convert to ROTH or pay tax each year to distribute from a traditional tax deferred IRA.
A friend's tax advisor told him to convert only a couple thousand a year to ROTH to minimize his taxes. He doesn't have much other taxable income.
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