Should I take a large distribution from my IRA?

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Q. I am 76, retired and I have only Social Security income. I’d like to take some money from my IRA. This year the government declared that there will not be penalties if you don’t take your Required Minimum Distribution (RMD). Is it wise to disburse a big amount from the IRA account?
— Retired

A. We’re glad you asked.

While you are normally required to take an RMD, you’re correct that you don’t have to in 2020.

That rule was part of the CARES Act, said Bill Connington of Connington Wealth Management in Paramus.

The other thing the CARES Act did was remove penalties for early distributions from these accounts. People will still have to pay taxes on the withdrawn funds, but they can spread the payments over three years.

So for you, at age 76, you were never going to face an early withdrawal penalty.

Connington said if you take a lot from your IRA, you will still have to pay the taxes on the funds.

If you don’t need the additional money, he said, why pay the extra tax?

“To really make a good decision, though, you should evaluate the tax savings,” he said. “What is the cost of taking dollars now and investing or waiting until next year? The real benefit is the growth on the taxes paid or not paid.”

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This story was originally published on Oct. 15, 2020.

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