topic Also consider your state taxes. in Retirement tax questions

Can I make traditional IRA contribution before 4/15 for prior year's tax and after 4/15 withdraw the same for this year's, if the tax rates are expected to be different?

shenbw01 — Sat, 01 Jun 2019 01:32:08 GMT

It's unlikely any tax changes will be retroactive, IMHO.

fanfare — Sat, 01 Jun 2019 01:32:09 GMT

It's unlikely any tax changes will be retroactive, IMHO.

1. A change in tax rates for 2017 is certainly possible b...

rjs — Sat, 01 Jun 2019 01:32:11 GMT

1. A change in tax rates for 2017 is certainly possible between now and the end of the year.
2. Congress frequently makes retroactive changes to the income tax. (But rates for 2016 won't change.)
3. OP might be subject to different rates in 2016 and 2017 because of differences in income, even if the tax rates in the law aren't changed at all.

Thanks. I am over 60 and am retiring this month. I expect...

shenbw01 — Sat, 01 Jun 2019 01:32:13 GMT

Thanks. I am over 60 and am retiring this month. I expect my income to be less this year than last, thus, the lower tax rate, and assuming no tax law changes in 2017.

So, effectively I can recycle the same $6500 IRA contribu...

shenbw01 — Sat, 01 Jun 2019 01:32:14 GMT

So, effectively I can recycle the same $6500 IRA contribution to reduce prior year's income and postpone the tax until next year, perpetually, until the minimum withdrawal rule kick in.

Well ... when you say "perpetually" that isn't likely sin...

CalCountry — Sat, 01 Jun 2019 01:32:15 GMT

Well ... when you say "perpetually" that isn't likely since your transition between employment and retirement only occurs once. As other have stated, legislative change to tax rates is unpredictable.

To get to details: Assuming you have sufficient "earned" income (not pension) to qualify to contribute and don't exceed the limiting AGI thresholds for contributions ... Consider the real impact of your plan. Calculating the absolute dollar value is simple. It is ((tax rate while employed) - (tax rate while retired)) x $6500. So, if contribute the maximum of $6500 and you are in the 25% bracket while employed, then you fall to the 15% tax bracket when retired, the saving is only $650. Remember that if you experience any earnings in the account before your withdrawal, that will be additional income on which you will owe tax.

This is really just a one-year income-shifting strategy....

rjs — Sat, 01 Jun 2019 01:32:17 GMT

This is really just a one-year income-shifting strategy. If you are going to perpetually defer the income from year to year, you might as well just leave the money in the IRA. Taking it out and putting it back in every year doesn't accomplish anything.

We do intend to maintain part time job. With both of us c...

shenbw01 — Sat, 01 Jun 2019 01:32:18 GMT

We do intend to maintain part time job. With both of us contributing $6500 each, if you do it right, you can make that 25% tax liability disappears over 2-3 years without much of the work, I guess.

Also consider your state taxes.

SweetieJean — Sat, 01 Jun 2019 01:32:19 GMT

Also consider your state taxes.

Sure you can. But if you are under age 59 1/2 then the wi...

macuser_22 — Sat, 01 Jun 2019 01:32:21 GMT

Sure you can. But if you are under age 59 1/2 then the withdrawal will have an additional 10% penalty in addition to the normal tax.

Also be careful where you invest the IRA. A bank CD or i...

SweetieJean — Sat, 01 Jun 2019 01:32:22 GMT

Also be careful where you invest the IRA. A bank CD or insurance company Annuity may have their own early cash out contractual penalties.

I should add that IRA's are intended for long term retire...

macuser_22 — Sat, 01 Jun 2019 01:32:23 GMT

I should add that IRA's are intended for long term retirement investments, not short term gains bases on tax rates.

QUICK Followup: I'm 65 and made both SEP IRA and TRAD IRA...

TuckerdogAVL — Sat, 01 Jun 2019 01:32:24 GMT

QUICK Followup: I'm 65 and made both SEP IRA and TRAD IRA contributions this year to existing accounts. They both now say "LONG TERM" ... which technically they are. But I just made the new contributions. Can I take out any amount I wish, knowing I'll be taxed as income, going forward? I could use some of the money that is just sitting in the money market right now that hasn't been allocated to any funds.

This is a 2 year old thread. It would be better to post y...

CalCountry — Sat, 01 Jun 2019 01:32:26 GMT

This is a 2 year old thread. It would be better to post your question in a new posting.
Deposits to IRA accounts become neither "long term" nor "short term." Those distinctions have impact on how funds are taxed in regular investment accounts. However, withdrawals from IRA accounts are all taxed as "ordinary income" no matter how long the funds have been in the account.

Thanks. Your answer makes sense. Sometimes the only place...

tuckerdognc — Sat, 01 Jun 2019 01:32:28 GMT

Thanks. Your answer makes sense. Sometimes the only place to get information is a two year old thread. And often, as with tech, I find myself searching with :2019 in the search because 5 year old tech answers is like 20 in dog years. Thanks again!

The problem with tagging onto an old post is that most us...

macuser_22 — Sat, 01 Jun 2019 01:32:29 GMT

The problem with tagging onto an old post is that most users here that answer questions here look for new questions without previous answers. Two year old posts that already have an answer will be ignored by most. Most such users use filters to search for unanswered or recent questions so if you want to have the most attention given to your question it is best to start a new thread with a new question.