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How can I pay the least in taxes on my IRA withdrawals?

By Karin Price Mueller | for

Q. My mother passed away in February. My sister and I were the beneficiaries of her traditional IRA. We have 10 years to withdraw the funds so what is the most tax-advantaged way to do this? I am turning 63 in September and my sister is 60. The accounts are around $400,000 each.

— Beneficiary

A. We’re sorry to hear about the loss of your mother.

You’re correct that you will have 10 years to withdraw the funds because of distribution changes from the SECURE Act. You can take the funds whenever you want as long as you deplete them all by that 10-year deadline.

When most people look at withdrawing funds from an IRA, their goal is to pay the least income taxes possible, said Bernie Kiely, a certified financial planner and certified public accountant with Kiely Capital Management in Morristown.

“I tell people their goal should be to have the largest amount of after-tax money,” he said. “The two are not the same.”

If your goal is to pay the least amount of state and federal income taxes, then you should take the money out annually over the 10-year period, he said, because that will help you avoid being pushed into a higher tax bracket.

But if your goal is to have the most after-tax cash at the end of the 10-year period, Kiely recommends you keep it invested and take it all out at the end of the ten years.

“This way your $400,000 could possibly grow to $800,000, assuming 7% annual return,” he said. “True, you would pay a lot in taxes, but you would also have a lot in after-tax cash.”

Just make sure when you do take the distributions that you have sufficient taxes withheld so you avoid tax underpayment penalties, Kiely said.

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Karin Price Mueller writes the Bamboozled column for NJ Advance Media and is the founder of Follow NJMoneyHelp on Twitter @NJMoneyHelp. Find NJMoneyHelp on Facebook. Sign up for’s weekly e-newsletter.


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