Cashing in IRA??

Question

My aunt, (who is 76) is planning on cashing in her IRA. She's had it for a LONG time.

What are the penalties, taxes, etc that she should expect to pay????

Answer 1

Tax at her marginal rate no penalty. She was required to take minimum distributions at 70.5 and if she didn't there is a 50% penalty so she could lose half her money. Make sure she sees her accountant before year end and takes some before year end. There is a schedule in publication 590 saying what the minimum is. Depending how much she has in the IRA it could be a very expensive move not taking enough or taking it all in a single year. She needs an adviser it is worth the money.

Answer 2

No penalties, UNLESS she hasn't been taking money out of it already the past few years.

The IRS requires that you take a minimum amount out of the IRA account every year, beginning with the year you turn 70 1/2. The minimum amount varies, and is calculated, roughly, by dividing the account's value at age 70 1/2 by the owner's remaining life expectancy (for a woman, it's around 84). A simple example would be that for an account worth 30K, the owner would have to take at least $2100 or so out every year, and report it as aordinary income. Depending on your aunt's other income, she might not owe any tax at all. If she cashed the entire thing in at once, she probably will have to pay some income tax. But, if she didn't take any money out of it at all the last five years, she'll owe not only tax, but some penalty as well for not taking the required minimum.

Before she does anything, your aunt should taklk to a qualified tax preparer for advice.

Answer 3

"ship" is dead-on!!!
Moreover, I would inquire why is she looking to cash it in?
If she is wanting to hand it over to you, you both would be better off having her will it over, or transfer it to a trust for you.
Cashing it out seems very questionable.
Now, please tell me she is not looking to put it into an Annuity!
Please for the love of God don't let here.
If she is, please consider this instead!
Put the money in Treasury Bonds. The interest is Federal Income tax free (so she would only be required to pay state taxes on the interest...unless she went with municipal bonds, as they aren't taxed by the government or the Federal income).
Example: You aunt has 1 Million in her IRA (it sounds like a lot, but this is half of what the average person needs).
If she put it all into US T-Bills, she is looking at 4% interest, or $40,000 per year, and she isn't even touching the principal. The money isn't being taxed, so she can live easy. With annuities, she will be taxed.

Also, the post about the IRA being an Irish terrorist group is dead-on too.

Answer 4

while you're in a bind and your in basic terms source of money is your IRAs, then i'd advise commencing with the Roth IRA. Being below fifty 9 a million/2 you're concern to the ten% untimely Distribution Penalty, yet in basic terms on the earnings, no longer the effectual because of the fact it is after-tax money. extra to that any fees or investment early withdrawal outcomes, it could upload as much as be under 17% pastime on a $19K stability over the years. then you definitely may additionally take a private loan against your 401K (if permittable by making use of the plan) for the relax stability and pay it back at a plenty decrease pastime value then your CC. or you could take a private loan for the finished quantity against your 401K. finally, you do no longer would desire to withdraw from the 401K. The SEP IRA, would probable be your maximum high priced selection. i'd go away that on my own.

Answer 5

It depends on the amount in the account. If she takes it all in the same year and there is a lot of money, the tax rate could be significant. A better option is to see a tax accountant and get some advice. We are very near year end. Just by taking some out this year and some out next year, which is only 17 days from now, she may save a bunch on taxes. To give better advice than this would require a complete review of her finances.

Answer 6

She will be taking distributions, you mean. No penalties, but it will be taxable income assuming you're talking about a conventional IRA. No taxable income if its a Roth IRA.

Answer 7

Is it a Roth or Traditional? If its a Traditional, the first answer cleared that up. If a Roth, then there are no taxes or penalties because withdrawals are tax-free.