I want to withdraw $75,000 from an IRA I inherited from my mother 2 years ago, but want to avoid paying taxes on all of it this tax year 2019, so my strategy is to withdraw $30000 before December 31st of 2019, then another $40000 next tax year 2020. My mother was already taking distributions from it, since she was in her 80s, when passed away. I know the deadline time for IRA distributions is December 31st, does that mean if I take a $40000 distribution in January of 2020, after the $30,000 withdrawal before December 31st, that that will count as a 2020 distribution for tax purposes, or as a 2019 distribution, since it's before April 15th, or do I have to wait until after April 15th 2020 to take a distribution that will be on my 2020 taxes. I realize there will be taxes on this, but I'd like to minimize them, with this method. I'm trying to avoid withdrawing the $75000 in one tax year.
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An IRA distribution is always reported and taxed in the calendar year that you take the distribution. It doesn't matter whether it's before or after April 15.
Ok then, so in December of this year I can withdraw $30000 and that will be considered for this years taxes, then on January 1 2020 I can withdraw $45,000 and have $75000, so only the $30000 will taxed on my 2019 return.
I assume that this is a traditional IRA, not a Roth IRA.
Have you been making the Required Minimum Distributions that you are required to make each year as a non-spouse beneficiary (for 2018 and 2019 so far if your mother died 2 years ago in 2017, plus any amount of your mother's 2017 RMD she had not satisfied before she died and was not satisfied by a distribution made to another beneficiary, if any)?
The $30,000 taken in 2019 would go toward satisfying the 2019 beneficiary RMD if not already satisfied with a previous distribution in 2019 and the amount taken in 2020 would go toward satisfying the 2020 beneficiary RMD. If you were to take $75,000 all in 2019, it would not satisfy any part of a 2020 RMD that you would have to take assuming that the account was not fully distributed in 2019.
Yes i've been taking the RMDs, since she died. The situation is, I want to withdraw the $75,000 from the account for a down payment on a home sometime early next year, but was thinking I it would be a good idea to withdraw some of the money this year to minimize taxes on the withdrawal.
Yes, that generally seems sensible. I would certainly do rough simulations of tax returns for 2019 and 2020 just to make sure that splitting the total over both years doesn't somehow result in paying more taxes due to some quirk of the tax code. For example, although it probably doesn't apply in this case, there are cases where someone receiving Social Security income might pay less total tax with a less obvious split.
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