15 Feb Inherited IRAs and your tax burden
Q. I inherited an IRA from my mother a few years ago. They have been sending the RMD. I’m 60, and I want to increase what I take from this account from $416 to $1,000 a month. What kind of taxes would be due? Is it better to take it monthly or all at once?
— Needing cash
A. When you inherit an IRA, there are several methods that can be used to withdraw the funds.
From your question it appears that you created an “Inherited IRA,” which means you kept the funds in IRA form and withdraw a required minimum each year, said David Ritter, chair of the tax practice at Brach Eichler in Roseland.
All withdrawals are generally reportable as income, he said, and you have the right to withdraw as much as you want.
“Withdrawing $1,000 per month – or $12,000 in a year – or $12,000 in a lump sum does not change the income tax reporting or the amount of income tax you may pay,” he said.
So how much will you owe? The amount of income tax that is payable will depend on your other income because the withdrawal from the IRA is added to any other income, Ritter said.
“Without knowing your other income, it is not possible to tell you the tax consequence accurately but if your income is less than $12,000 (single) or $24,000 (joint married) there is no tax,” he said. “Thereafter, the rate schedule increases at certain increments starting at 10 percent and increasing to 12, 22 and reaching 24 percent for income in excess of about $94,000 for a single person, or $190,000 for a married joint return.”
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This post was first published in February 2018.NJMoneyHelp.com presents certain general financial planning principles and advice, but should never be viewed as a substitute for obtaining advice from a personal professional advisor who understands your unique individual circumstances.