Taking Distributions Early

reduce taxes

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Based on what we just covered about wanting to defer distributions to defer taxes, why would anyone in their right mind take distributions early? It can actually save taxes in certain situations.


Bill and Linda are both retired, have large IRAs, and are 60 years old. Their taxable income will be $30,000 this year.

The new tax law extends the 15% tax bracket to $61,300 for couples filing jointly (see table below). Thus, Bill and Linda could distribute (or convert to a Roth) $31,300 worth of their IRAs to this year and fully use up their 15% tax bracket.

The federal income tax rate on the $31,300 distribution will be 15% ($4,695).

If Bill and Linda had waited until they were 70½ and subject to required mandatory distributions, those larger distributions may have pushed their income into a higher tax bracket. Therefore, sometimes it pays to pay tax early if you do so at a lower rate.

Table 3.2: Schedule Y-1 — Married Filing

Jointly or Qualifying Widow(er) 2006

If taxable


is over—

But not


The tax is:

10% of the amount over



$1,510.00 plus 15% of the

amount over 15,100


$8,440.00 plus 25% of the

amount over 61,300


$24,040.00 plus 28% of

the amount over 123,700


$42,170.00 plus 33% of

the amount over 188,450

no limit

$91,043.00 plus 35% of

the amount over 336,550

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