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Lane
Lane, JD, CFP, MBA, CRPS
Category: Tax
Satisfied Customers: 10814
Experience:  Law Degree, specialization in Tax Law and Corporate Law, CFP and MBA, Providing Financial & Tax advice since 1986
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I am a 55 year old woman with a home in Seattle who wishes

Customer Question

Hi, I am a 55 year old woman with a home in Seattle who wishes to liquidate her IRA and flip a house. this has worked well for me in the past. Better than the 8% I currently receive from the stock market.
What will I pay to liquidate a 211K IRA. (both in the money to take it out and in the increase in the income tax I pay for 2016.) I traditionally Earn about 65K per year but have potential to earn 85K this year with all my new overtime.
Submitted: 10 months ago.
Category: Tax
Expert:  Lane replied 10 months ago.
Hi Eileen,... Your profit net profit would have to be pretty for this to make sens ... and it CAN......If you file as single, here's what your income tax bracket s look like...Single Filing Status[Tax Rate Schedule X, Internal Revenue Code section 1(c)]10% on taxable income from $0 to $9,075, plus15% on taxable income over $9,075 to $36,900, plus25% on taxable income over $36,900 to $89,350, plus28% on taxable income over $89,350 to $186,350, plus33% on taxable income over $186,350 to $405,100, plus35% on taxable income over $405,100 to $406,750, plus39.6% on taxable income over $406,750....As you can see, your income would put you squarely in the 25% bracket ... and the additional 211,000 would all be taxed at the 28 and 33% brackets (plus the a additional 10% penalty tax for withdrawing before age 59 and 1/2)...So, you're looking t losing 40% (angerously close to half of that 211,000) to taxes....Qualified plans and (personal plans, IRAs') were really designed with pulling the dollars out over time (when that might be the only income that you have - over and above social security - in mind ... so that (1) you are are in much lower tax brackets and (2) it isn't all pulled out in one tax year, so that you aren't pushed into an "artificially high tax bracket for the year withdrawn....So again ... CAN make sense, but you have go thingk about NOT ONLY the 40% loss to taxes BUT the opportunity cost as well (the fact that those dollars won't be in that IRS growing at an average of 8%)...Finally, you COULD be pulling if you pull THIS year before oil normalizes and the political uncertainly leaves the picture .. at a time when you might be locking in a loss (that will likely correct itself after oil normalizes -supply and demand for oil - and the election is over - regardless of who wins, we'll finally know more about what policy is going to look like and we'll see the institutional money come back into the markets....So there are three big pieces here;..(1) The 40% loss to taxes(2) future gains in the market foregone, and(3) selling at the wrong time...If you think you can overcome that and do better, that's the hurdle...I have no IDEA what your potential for gain on the flip might be. but this is what you'd need to think about as your break-even starting point....I hope this has helped....Please let me know if you have any questions at all....If this HAS helped, and you DON’T have other questions … I'd really appreciate a positive rating (using the stars or faces on your screen, and clicking submit)...That’s the only way JustAnswer will credit us for the work here....Thank you!Lane……I hold a JD (Juris Doctorate, the law degree), with concentration in Tax Law, Estate law & Corporate law, an MBA, with specialization in finance & tax, as well as CFP® and CRPS designations. - I’ve been providing financial, Social Security & Medicare, estate, corporate & tax advice since 1986.

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