'Late' IRA Distribution

[Swarley2]

I am already retired and have calculated that I have taxable income less than the 2021 standard deduction. Since one needs to calculate their 2021 return before they would know how much to withdraw for tax year 2021.  I would pay $0 tax on certain sized withdrawl.

One can contribute to an IRA until April, can one still withdraw monies (Mar 2022) from an IRA to count as a 2021 distribution? 

[BillM223]

"One can contribute to an IRA until April, can one still withdraw monies (Mar 2022) from an IRA to count as a 2021 distribution? "

Sorry, no, distributions belong to the year in which you actually take them (with the exception of the withdrawal of excess contributions).

And while we're on the subject of trying to match an IRA distribution to a certain amount while staying under the Standard Deduction, you may or may not be aware that the amount of Social Security that is taxable is variable, that is, it's based on the amount of SS income AND the amount of other income you have (like IRA distributions), up to 85% of what you receive..

Thus it can happen that while you withdraw a modest amount and plan to stay under the Standard Deduction, that suddenly more SS is taxable than you thought and you end up owing tax.

That is why I encourage every retiree who is on Social Security to do a test tax return before they give the order for a withdrawal for even a modest amount from their IRA (and certainly this must be done for a large IRA withdrawal).

[Swarley2]

"That is why I encourage every retiree who is on Social Security to do a test tax return before they give the order for a withdrawal for even a modest amount from their IRA"

...and how is that done before Dec 31? Wild-ass guessing on a lot of SS, annuity, DIV, INT and other amounts? One only knows that AFTER putting real numbers into the forms.

[VolvoGirl]

If you need to take the RMD from your IRA it is based on the prior year ending balance, not the current year income.  It is a set minimum amount you have to withdraw.  You only have the option to take out more.  So there is no guessing or testing needed.  It's a done deal.  

Like for this year 2022 you need to take out a distribution based on your 12/31/2021 ending balance.  Your SS and IRA RMD are fixed amounts.  You might be able to adjust other kinds of income to affect your tax return like selling investments that aren't in a IRA account.  

[Swarley2]

"you need to take the RMD from your IRA"

This has nothing to do with a RMD. I just had room under the 2021 Standard Deduction that I could have withdrawn some IRA funds tax free. But one has to make a wild-ass guess what their tax liability will be months before the tax laws are finalized.

Why hasn't someone asked this before?

[Opus 17]

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@Swarley2 wrote:

"you need to take the RMD from your IRA"

This has nothing to do with a RMD. I just had room under the 2021 Standard Deduction that I could have withdrawn some IRA funds tax free. But one has to make a wild-ass guess what their tax liability will be months before the tax laws are finalized.

Why hasn't someone asked this before?

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Turbotax is released in draft form in November.  Most IRS forms and instructions are also published before December 31, if you want to do a test return on paper.  Many companies including Turbotax have tax estimation software or web sites.  And most years, the tax laws don't change too much, so the prior year software can usually make a pretty close estimate.   The bottom line is that there are no retroactive withdrawals.  You need to make your best guess from the available information and tools and make any withdrawals before December 31. 

[fanfare]

@Swarley2 

You have to do a TRIAL 2022 tax return.

 you can do this with TurboTax CD/download, or any other service that lets you start your tax return for free without paying for the service.

enter your 2022 expected income and the result will be close enough.

then enter the amount  you want to withdraw.

If your tax goes up, you would be taking out too much.