Keep money in IRA or move to Ally Savings?

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Pobre
Posts: 46
Joined: Fri Jan 22, 2016 11:29 am

Keep money in IRA or move to Ally Savings?

Post by Pobre » Mon Mar 19, 2018 6:40 am

Hello, Bogleheads! I have a question.

A guy I know, who is in his mid 60s, has only about 22K in a traditional IRA. That's all he has for retirement except that he also receives disability benefits and food stamps.

Obviously, he is poor and lives pay check to pay check. I believe all he has in savings is around 3K, maybe less, but he is unable to save anything on a regular basis. He suffers from severe disability and other health issues that prevent him from working.

A CPA told him that at his age, he can withdraw 13K (His standard deduction?) or less from his IRA without getting taxed on those withdrawals, I guess because of his very low income and legal disability status.

He asked me if he should withdraw 100 per month from his IRA in order to supplement his income from disability benefits and food stamps, or if he should go ahead and withdraw the maximum, 13K, in the next year and a half and move it into an Ally savings account and possibly CDs.

His reasoning is that if he had a large emergency expense in the near future, health related or otherwise, he might have to withdraw more than 13K from his IRA and then he'll have to pay taxes on that withdrawal. However, if he moves it to an Ally savings account, he could withdraw more than 13K without getting taxed on that withdrawal.

I told him I didn't know the answer to that because the way I understand it, interest in his IRA is not currently being taxed, and won't get taxed as long as he doesn't withdraw more than 13K per year. However, in an Ally savings account and/or CDs, his interest will be taxed.

What do you Bogleheads suggest?

Thank you very much in advance!
Last edited by Pobre on Mon Mar 19, 2018 6:58 am, edited 2 times in total.

JoeRetire
Posts: 1065
Joined: Tue Jan 16, 2018 2:44 pm

Re: Keep money in IRA or move to Ally Savings?

Post by JoeRetire » Mon Mar 19, 2018 6:56 am

It's only 22k, thus isn't likely to make much of a tax difference either way.

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FiveK
Posts: 4925
Joined: Sun Mar 16, 2014 2:43 pm

Re: Keep money in IRA or move to Ally Savings?

Post by FiveK » Mon Mar 19, 2018 5:09 pm

Pobre wrote:
Mon Mar 19, 2018 6:40 am
A CPA told him that at his age, he can withdraw 13K (His standard deduction?) or less from his IRA without getting taxed on those withdrawals
The standard deduction for a single filer age 65 or older is now $13,600/yr.

He could withdraw $13K without paying tax if and only if the sum of all other taxable income is $600 or less. But why do that? For practical purposes, he can invest the tIRA money in anything in which he would invest if he withdrew it. What is the max out-of-pocket on his health insurance?

Withdrawing $1200/yr to augment living expenses seems a very reasonable thing to do.

Pobre
Posts: 46
Joined: Fri Jan 22, 2016 11:29 am

Re: Keep money in IRA or move to Ally Savings?

Post by Pobre » Tue Mar 20, 2018 2:37 pm

Thank you very much, JoeRetire and FiveK. I will pass your advice on to him.

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