Wife and I, both in our late 70's. Wife is having memory issues, We will be moving into an Assisted Living Facility. The entry fee (that will be returned at time of death) is $350K. Most of the fee, I have in CD's etc. I would have to withdraw from my IRA for some of the entry fee. Any way I can avoid the tax on the withdrawal ? I know of non, but always good to ask the group. Thanks,
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"Any way I can avoid the tax on the withdrawal ?"
No.
There are some exceptions to the age 59.5 rule (10% penalty), but none for taxability of previously deducted contributions & earnings under your scenario.
See Pub 590-B. The reference to "tax free withdrawals" below is for rollovers, or removing recent contributions (undo) before you deduct them.
"Exceptions. Exceptions to distributions from traditional IRAs being taxable in the year you receive them are:
• Rollovers (see chapter 1 of Pub. 590-A);
• Qualified charitable distributions, discussed later;
• Tax-free withdrawals of contributions (see chapter 1 of Pub. 590-A); and
• The return of nondeductible contributions, discussed later under Distributions Fully or Partly Taxable."
"You said it, they'll never know the difference. Come on, we'll paint our way out!" - Moe Howard
"That's enough! When you didn't know what you were talking about, you really had something! [to Curly]" -Moe Howard -
Any withdrawal from a Traditional IRA is a fully taxable event in most cases, although as noted by RR there are some situations that can lessen any 10% penalty issues.That aspect is not relevant to you.
NOTE: If you are in / bordering any IRMAA surcharge scenarios, if possible you might want to spread your expected IRA withdrawals over calendar years 2022 and 2023. That might save both you and your wife some serious Medicare B / D premium surcharges. The assisted living facility might be willing to cut you some slack to pay off everything in early January. The flip side is that if you don't need to pay until 2023, withdraw some of the funds by the end of 2022.
Good luck!!Comment
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How about borrowing from the retirement plan?
BrianEverybody should pay his income tax with a smile. I tried it, but they wanted cashComment
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borrow from the CD's. If you qualify the interest could be argued as a medical expense"Dude, you are correct" Rapid RobertComment
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If you/wife have large medical deductions, that'll help you deduct from income on your federal return. Run the numbers. Won't help on states that don't itemize, though.Comment
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If OP has $350k of new taxable income (from the IRA withdrawal), there would have to exist significant qualified medical expenses just to break the 7.5% AGI floor for medical deductions on Schedule A.
If the CDs are free-standing, it is probable that loan interest costs at Nov 2022 rates could exceed the payout rates of the actual CDs. Heck, it might be cost effective to swallow the (deductible) early withdrawal penalties on the CDs rather than to pay (nondeductible) interest on a new loan. (Is it even possible to borrow against a CD? ?)
But, as RR often reminds us, this thread is wandering away from the original query. SIMPLE answer - Funds withdrawn from a Traditional IRA for the purposes cited will be fully taxable, with the possible exception of any Form 8606 adjustments.Last edited by FEDUKE404; 11-05-2022, 02:49 PM.Comment
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"If you qualify the interest could be argued as a medical expense"
No, it could not. Personal interest (as opposed to investment or business) is expressly disallowed as a tax deduction except for mortgage and student loan interest.
"But, as RR often reminds us, this thread is wandering away from the original query."
Maybe confusing me for someone else? I think I go off on tangents as much as anyone (but only after trying to answer the question first, if I can).
But what I really came here to say is, why would borrowing anything be a good idea? Where is the money going to come from to "pay back" the principal on any loans from an IRA, if there was allowed such a thing anyway? Even borrowing from a 401k, if the plan allows, while still working and under age 59.5 should only be considered a last resort.
The IRA funds are going to be taxed one way or another, why not pay some of it now while tax rates are still relatively low?"You said it, they'll never know the difference. Come on, we'll paint our way out!" - Moe Howard
"That's enough! When you didn't know what you were talking about, you really had something! [to Curly]" -Moe HowardComment
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The "wandering" comment was meant to be a compliment!
Some discussions here DO often. . .take a detour or two.
As for getting loans for anything related to the scenario posted, I also see that approach as being VERY far down the list of preferred options.
Sometimes you just have to swallow hard, pay the darn taxes, and move on. . .Comment
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