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Merlo
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My work is changing the pension plan going from Treasury to

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My work is changing the pension plan going from Treasury to Corporate Bonds to reduce lump sum payouts. We owe approx 110000 on our home financed at 6 percent. If I leave Nov 09 I expect 180000 lump sum put in a regular IRA. I plan to start Social Security Dec 1 2009 and will make approx 80000 this year, so I do not want to create a big taxable event this year and my wife and I wonder the best way to pay our home off using this money. Do you advise to pay the whole amount in Jan 2010 or pay off over 3- 5 years. We want to do the best for our taxes and save the 6 percent interest and be free of a house payment. We have enough savings to live without this lump sum. Thanks for your ideas.
Submitted: 5 years ago.
Category: Tax
Expert:  Merlo replied 5 years ago.
Hello retire,

When you withdraw money from an IRA account, the amount you withdraw is added to any other income you have for the year from other sources. So this would include wages that the other spouse may still earn, interest, dividends, retirement pension, etc. It is then your overall total income for the year, including that IRA withdrawal, which will determine the tax bracket you are in and the percent of tax you would pay.

Because of our graduated tax system, the more you take from the IRA account in any one year, the more tax you will end up paying, and if the withdrawals are high enough, they could end up throwing you in to the next highest tax bracket which is what you want to try to avoid. Below are the tax brackets for 2009. This is based on taxable income after your allowed deductions for a married couple:

10% on the income between $0 and $16,700

15% on the income between $16,700 and $67,900; plus $1,670

25% on the income between $67,900 and $137,050; plus $9,350

28% on the income between $137,050 and $208,850; plus $26,637.50

What you should do is figure up what your total taxable income will be for 2010 without any IRA withdrawals. If that figure for example comes up to $50,000, then by using the brackets above you can see that withdrawing another $17,900 from the IRA would still keep you in the 15% tax bracket, so you would end up paying 15% tax on the IRA withdrawal. Any withdrawal over that amount jumps to the next highest tax rate of 25%.

Using these brackets to determine the amount you should withdraw each year will help you to keep your withdrawals within a reasonable tax range.

If this was helpful please press the Accept button.

Thank you retire, and let me know if you have more questions.


Merlo, Accountant
Category: Tax
Satisfied Customers: 9783
Experience: 25+ years tax consulting. Specializing in returns for US citizens living abroad
Merlo and 6 other Tax Specialists are ready to help you
Customer: replied 5 years ago.
Very helpful. Thank you very much.

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