IRA Tax Rescue

You have a 401k or IRA and you’re currently taking or about to take Required Minimum Distributions (RMDs). You may or many not need the income. But one things for sure, like so many retirees, you hate to pay the taxes on your IRA distribution. 

So what do you do?

For most retirees, nothing seems to be the most common answer.

401ks and IRAs are tax-deferred accounts, which enjoy the compounding growth effects without having to pay taxes on the earnings. 

However, when you reach the age of 70 ½ , the IRS mandates that you must begin taking minimum distributions. It is then that you must also pay ordinary income taxes on those distributions.

If you can’t avoid paying the taxes on your IRA/401k distributions, what can you do? 

Through the IRA/401k Tax Rescue technique, you may be able to pay ZERO taxes on your IRA distributions by creating deductions using your home.

The concept is very simple. You first create a tax deductible mortgage payment, and then remove the money from an IRA/401k to pay for the mortgage.

 Why does this work?

Because every taxable dollar removed from the IRA/401k will be allocated to a deductible mortgage interest expense.

Example: Say you and your wife are both retired and have a combined $500,000 in your IRAs. You own a home worth about $400,000. You’re both 70 years old. Your required minimum distributions for the year amount to $18,250. 

 To reduce the tax on that $18,250, you would take out an interest-only mortgage for $260,714 (assuming interest rate at 7%).

 With a $260,714 interest-only mortgage at 7%, you would have an annual mortgage interest expense payment of $18,250, which if set up properly can be fully tax-deductible and offset the tax on your IRA distributions.

To see how this IRA/401k Tax Rescue technique may benefit you, click here to request a customized IRA analysis.