IRA and 401k withdrawal strategy – The Condensed Version

This is the seventh, and (until I think of something else to say on the topic) last post in the series on IRA and 401k withdrawal strategy.  Please remember, that, while there are tax reasons to withdraw from your IRA and 401k in the early years of your retirement, my main focus (as an elder law attorney) is on how to avoid the extra cost of taxes that results from having significant money in your IRA or 401k at the time that you need long term care.

My prior six posts have discussed how and why to withdraw money from your IRA or 401K, or 403B, or MyRA (when it arrives) or any other tax-deferred account.  See “IRAs and 401Ks are not for tax avoidance. They are for tax timing” from March 20, 2014, “IRAs and 401Ks – Withdrawing Money Too Slowly” from March 27, 2014, IRAs and 401Ks – Withdrawing Money Too Quickly from April 3, 2014, IRA and 401k Withdrawal Strategy – Don’t be Stupid about It from April 4, 2014, IRAs and 401Ks and the Risk of Long Term Care from April 17, 2014, and IRAs and 401Ks – What if your state’s Medicaid doesn’t count them?  from April 24, 2014.  (As I’ve done before, I’ll call them all IRAs, but the discussion will apply to 401Ks, 403Bs, and even MyRAs (assuming that they act like IRAs when the rules eventually get written,) and other tax deferred accounts, except perhaps Roth IRAs.)  After spending weeks on the “why” and “when” and the details of “how” to manage IRA withdrawals after retirement, I want to conclude the series with a short, bullet-pointed summary.  You might think of this as the “IRA Withdrawal To Do List.”

  • Please do not take these posts as advice not to have an IRA.  My posts focus on when and how to take the assets out.
  • After you retire, if your living expenses are higher than your income, take money out of your IRA rather than out of your already taxed assets outside the IRA.
  • As the end of a year approaches, take additional money out of your IRA to put yourself near the top of the 15% federal tax bracket.  (If you’ve got a large IRA, then aim for the top of the 25% bracket.)
  • In any event, aim to have the IRA emptied within 10 years (even if it means getting into a tax bracket higher than 25%.)  Your risk of long term care goes up each year, and really goes up after 75 or 80 years old.  Try to have your IRA empty before that risk gets high.  (Even if you’re not worried about long term care costs, I have provided plenty of tax reasons in the past weeks to justify systematic IRA withdrawals.)
  • If you live in a state that doesn’t count IRAs as assets for Medicaid purposes, talk to an elder law attorney.  The exclusion of IRAs from Medicaid calculations may not be as black and white as you think. In addition, if you could qualify for VA Pension, the IRA value may prevent you from getting benefits.  Finally, the tax reasons to deplete your IRA before your death apply no matter where you live.
  • If you didn’t or can’t empty your IRA before you or your spouse needs long term care, don’t try to outsmart Medicaid or the VA.  They’ve done a lot more of these than you.  You’ll probably come out behind.
  • Also, if you didn’t or can’t empty your IRA before you or your spouse needs long term care, don’t panic and empty it right away.  Talk to an elder law attorney before making any drastic moves.
  • Finally, If you need long term care (whether you have an IRA or not,) seek out an elder law attorney that works with people who need long term care.  Don’t settle for just any attorney, and don’t believe that experience with wills, trusts, and probate is the same thing as elder law.  A good elder law attorney may be able to help protect some (perhaps many) of your assets.

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Jim Koewler’s mission is
Protecting a Senior’s Life Savings™
from the costs of long term care

For help with long term care costs or special needs planning,
call Jim or contact him through his website.

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