Hello Experts,
This may be silly/stupid question but just wanted to do a quick sanity check 🙂
Let's say during my retirement, I withdraw $80,000 per year from my 401K. Please assume no other income.
With this - my taxable income would be $80,000 - Standard Deduction($25K), this will leave us with net taxable income of $55K. Would be this $55K considered as regular income and taxed accordingly OR it is considered as long term gain? If the entire amount is considered as Income (not LT Gain), I am wondering how is that reasonable, since some part of that withdrawl could be gains out of investments? No? I am sure, I am missing something obvious, please help!
Withdrawals from your retirement account are taxed as ordinary income no matter what the source when transacted within your retirement portfolio.
You are coming to realize the downside of RMD at age 72. It is all ordinary income.
As some (?) relief, you can take out stocks in-kind and move them into your regular investment account.
something will have to be liquidated to pay the amount you owe or the custodian's minimum withholding amount.
Thank you so much for the response and insights. If you don't me asking can you please elaborate on "take out stocks in-kind and move them into your regular investment account". I am not aware of this method, appreciate your time and help.
tell your custodian you want to transfer certain shares out of your IRA. It's on the RMD form.
That can satisfy all or part of your RMD.
Distributions from your 401-K or IRA are taxed as ordinary income. You could reduce this by instructing the trustee/firm that manages your account to withdraw some shares of stock. Or, you could have them transfer either part of the required minimum distribution (RMD) to a charity, including a religious organization, of your choice. You could help the charity even more by having the transfer be of stock.
Understand that transferring stock as opposed to withdrawal of cash from your retirement account for your RMD does nothing to your tax liability which I understand is your concern. You pay the same tax on a withdrawal of $80,000 cash as you would on $80,000 of stock.