01 Jun Will an IRA withdrawal stop the Senior Freeze?

Q. I help a senior citizen with her finances and prepare the Form PTR-1 for the annual Senior Freeze tax benefit. She is having some serious medical issues, and her only assets are her home and a modest IRA worth $40,000. She will need to access some cash, but I am afraid withdrawing from the IRA, which will cause a fairly dramatic increase in her income, may void her from this important senior benefit. Should she try to reverse mortgage her home instead to limit the income hit? She depends on the annual freeze payment to pay her taxes and stay in her home.
— Helper

A. It’s kind of you to help this senior with her finances.

A reverse mortgage may be a drastic move.

Kenneth Bagner, a certified public accountant with Sobel and Co. in Livingston, said he would try to avoid a reverse mortgage unless she absolutely needs funds financially to live and has no other alternative.

“There are many hidden fees in the reverse mortgage that add up and eat into the equity of your home that you can pass to your family upon your passing,” he said. “You should never let the proverbial tax tail wag the dog.”

Bagner said for the Senior Freeze, you can have income in 2021 up to $94,178 including Social Security. For 2022, you can expect the amounts to be indexed for inflation so the amounts should increase.

“Depending on the circumstances, I would try to manage within that amount and draw out of the IRA only what is needed,” he said. “The good news is for income taxes the medical expenses are itemized deductions deductible over 7.5% of adjusted gross income, if you itemize.”

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This story was originally published on June 1, 2022.

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