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Bill, Enrolled Agent
Category: Tax
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Experience:  EA, CEBS - 34 years experience providing financial advice
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I have a $103,000 IRA on a CD that matures Jan. 2012. I am

Resolved Question:

I have a $103,000 IRA on a CD that matures Jan. 2012. I am 73 years old and would like to close the IRA and invest the money in a $100,000 life insurance. How much would I have to pay in taxes if I withdraw the entire amount?
Submitted: 2 years ago.
Category: Tax
Expert:  Bill replied 2 years ago.
If you withdraw the entire account then the amount of tax you will owe will depend on the amount of your other income, your filing status, and your deductions. For example, if you file single and your only other income is social security of $12,000 a year then the tax on the withdrawal will be approximately $22,000. It may make sense to spread the withdrawal over 2 years by withdrawing half of it this year and the balance in January of next year to possibly reduce the overall tax. If it is a bank CD, many banks waive any early redemption penalties for IRA owners over age 70 1/2. You may want to review the bank's policy on this.
Customer: replied 2 years ago.

I am married, filing jointly. Our combine taxable income for 2010 was about $32,000. Will that change what I have to pay on the IRA withdrawal?

 

Are you saying I can withdraw $50,000 before Dec. 31,2011, and then the other $50,000 on January 2012? If so, how much would I have to pay each year (more or less, of course).

 

Thank you.

Expert:  Bill replied 2 years ago.

If the $32,000 is taxable income after deductions (such as the standard deduction or itemized deductions, personal exemptions etc), then the additional tax will still be about $22,000. If you spread it over 2 years then the additional tax will be about $18,000 over the 2 years ($9,000 each year). These are rough numbers since I don't know how much your social security benefits are.

Many banks waive early redemption penalties on CDs for IRA owners over age 70 1/2. If your bank does then you could withdraw $50,000 this year and place the other funds in a money market balance within the IRA. In January you could withdraw the balance from the IRA. You will need to check with your IRA to see if they will waive any penalties.

Bill, Enrolled Agent
Category: Tax
Satisfied Customers: 3077
Experience: EA, CEBS - 34 years experience providing financial advice
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