Large IRA Planning Opportunities

According to a report from the GAO, in 2011 (most recent data) there were over 600,000 Americans with IRAs with a balance of $1 million or more. Suffice it to say, that number is bound to be much larger today, nearly 10 years later. In fact, Fidelity recently reported that the number of folks with $1 million or more in a 401(k) plan is nearly 200,000.

With that in mind, if you’re in this group or plan to be in this group, what are the planning opportunities that you have available to you? Naturally, this fits into the “good problem to have” environment because having a significant amount in retirement accounts can help ensure a comfortable retirement.

On the other hand, $1 million isn’t necessarily that much money when you consider that you’ll need to make it stretch out over (possibly) 30+ years in your retirement. For a 70-year-old with a $1 million IRA, the Required Minimum Distribution (RMD) is only approximately $36,500. For many folks, that’s hardly a drop in the bucket for living expenses, if that’s the only money available.

Thankfully there are other sources many folks have available to them – such as Social Security, pensions, and other investments outside of retirement accounts. 

For some folks, such a withdrawal is more than they’ll need. If the IRA money is likely to be more than you need for living expenses (specifically when you reach age 70½), there can be some opportunities early on in the process to help you ease the tax hit. This is especially important right now, during a time of historically-low income tax rates.

For example, if your taxable income needs are met with an income of $80,000 (for a married taxpayer), this puts you in the 12% tax bracket with approximately $23,000 of headroom (income that would continue to be taxed at the 12% rate). Further, you have an additional roughly $89,000 that could be claimed as income before you breached the 22% bracket. So that makes a total of around $112,000 of income that you could claim before hitting the 24% bracket.

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