How to make sure that the IRA distribution / withdrawal from your IRA won’t be taxed when you roll it over to a new IRA with 60 days

Moving money between two IRA accounts can sometimes be a tricky endeavor, and it is critical that you understand your transfer options to make sure that you don’t cause yourself any unnecessary taxes on whatever it is that you are trying to do.

For most individuals, moving money from one IRA custodian to another IRA custodian occurs when they are switching advisors  or money managers. You might have an IRA at Fidelity, but want to move your account to an IRA at Vanguard, and this process is completed by what is know as a “trustee to trustee” transfer.

The paperwork process to complete this transaction is fairly simple:

  1. Open a new IRA account at the brokerage firm / custodian of your choice
  2. Fill out the Trustee to Trustee IRA transfer paperwork
  3. Your new IRA firm will then submit your signed request to your old IRA company, and your IRA assets will then be transferred over tax free.

For example: 

You have an IRA at Fidelity, and you want to open up a new account with Anthony Capital to take advantage of their FBIAS™ Fact Based Investment Allocation Strategy portfolios that are risk managed. You would open up a new IRA account at the custodian that we use, Interactive Brokers by clicking on THIS LINK, and then request to transfer the account positions over via the Trustee to Trustee transfer process.. Viola! Piece of Cake!

What if you have cashed out your IRA? How do you put the money back in to an IRA and not pay taxes on it?

If you’ve withdrawn monies from your IRA, you have 60 days to put the monies back in another IRA before it will be deemed as Ordinary Income on your 1040 tax return and you’ll be liable for the taxes. To prevent that from happening you’ll need to do the following:

  1. Report the amount of distribution on line 15(a) of Form 1040 as a non taxable distribution.


Because you cashed in your IRA, your old broker/custodian will send you a 1099 form for that tax year and will report this distribution as ordinary income to the IRS. You want to fill out line 15a on your 1040 form to acknowledge that you did take a distribution, but it should not be taxable because you have deposited the monies into a new IRA with in 60 days. As long as you redeposit the entire amount, within 60 days, it won’t be taxable–hooray!

For example–If you took out $100,000 from your IRA, then you’d list $100,000 on Line 15a.

2. Write ROLLOVER next to line 15b to indicate to the IRS that you transferred the money to a new IRA account. You want to make it easy for them to know that you did not spend the money!

3. Make sure that your new IRA custodian reports this $100,000 IRA on the IRS Form 5498

When you deposit money into your new IRA, make sure to tell them the money is coming from another IRA account and that you are doing it within the 60 day rollover window. Your new IRA company will send you and the IRS, Form 5498, IRA Contribution Information, which resembles the Form W-2 that businesses use to report wages to the IRS. The form is used to not only report IRA contributions to the IRS (box 1), but also IRA rollover contributions (box 2) that satisfy the 60 day rollover rule.

form-5498This form is required to be sent to you by May 31st following the year that the contribution was made. Since your tax return form is due April 15th, it is not meant to help you report your contribution/60 day rollover, since the information you provided on your Form 1040 line 15a would have done this, rather it is used to help the IRS make sure that the amount of IRA deductions on the IRA owners’ tax returns matches the trustee reports.

You don’t need to do anything with the form itself, meaning you don’t attach it and send it in with your tax return, but you should keep it for your records and make sure that your new IRA custodian sends it to the IRS.

Hope that helps! Now that you have your money inside of your IRA, you should look at some proactive money management strategies to invest your money, like FBIAS™ Fact Based Investment Allocation Strategies. These is a risk-managed investment process that seeks to profit in bull markets and protect profits in bear markets.

If you have any questions, please reach out to an Anthony Capital, LLC advisor today!


Dave Anthony, CFP®, RMA®


How does working after retirement affect Social Security?

What happens to my Social Security income if I continue working after retirement?

It depends on how old you are…..

  • Working after retirement can impact your Social Security benefits, health insurance and taxes.
  • You can contribute to a IRA or Roth IRA with you earned income

If you decide to go back to work after you have started Social Security benefits, this could impact the amount of Social Security that you will receive and your Medicare and tax payments.

Whether your Social Security income is reduced depends on your age. For benefit purposes, the Social Security Administration (SSA) defines the full retirement age as 66 for people born between 1/2/1943 and 1/1/1955. So let’s assume that you are under age 66 and you go back to work…

social security taxes can cost thousands

How much can you make in retirement and still get Social Security benefits if I am under 66?

  • If you are under full retirement age for the entire year, Social Security is reduced $1 from your benefit payments for every $2 you earn above the annual limit. For 2016, that limit is $15,720.

Example #1:

You are under age 66 all year and you get $1,000/month from Social Security, and you make $25,720 at a part time job. This is $10,000 over the 2016 limit of $15,720.

Your Social Security benefits would now be REDUCED by $5,000, or $1 for every $2 you earned over the limit. Since you are $10,000 over this limit. Your total income is $5,000 SS + $25,770 part time job = $30,770. If you are single, your total taxable income will be, _________, and your total taxes would be __________


What happens when you reach the full retirement age of 66?

  • In the year you reach full retirement age, Social Security is reduced $1 in benefits for every $3 you earn above $41,880. Social Security only counts the money that you earn before you turn 66, so if you have an early calendar year birthday in January or February then your benefits are only reduced in the months before you turn 66.  In 2016, the limit on your earnings before you turn 66 is $41,880. Once you celebrate the big 66, you can make as much as you want without having a reduction of SS benefits! 85% of which could be included in your taxable income at a 46% rate (TAX TORPEDO), and your Medicare Part B and D premiums could quadruple, but that is for another post…..

Example #2:

Same as #1, but You turn 66 and reach full retirement age in August 2016. Your Social Security benefits should be $1,000/month or $12,000/year and you make $63,000 during the calendar year with $44,000 being paid out in the 1st 7 months of the year, January-July. You made $2,120 over the year you turn 66 limit of $41,880. Your Social Security benefits will be reduced from January to July by $706, $1 for every $3 that you made over the limit.

Limit: $41,880

You made: $44,000 before the month that you turned 66

Overage: $2,120

Reduction in SS benefits: $2,120 overage/ $3 Social Security reduction divisor = $706 total Social Security reduction

Instead of getting $12,000 of Social Security benefits for the year, you get $11,294. Your Social Security benefits are not reduced August-December. They will be taxed though….

What income counts toward my Social Security reduction of benefits if I work in retirement?

Social Security only counts the wages that you make from your job, or your net profit if you’re self-employed.

They include:

  1. Bonuses
  2. Commissions
  3. Vacation Pay

They don’t include:

  • Pensions
  • annuities
  • investment income
  • interest
  • VA or government benefits

As you continue working, your additional earnings will count towards your Social Security monthly benefit calculation, which means that your monthly Social Security payment could increase! If your benefit is wiped out before age 66 because you made a significant amount over the threshold, then Social Security will credit you for the months that you did not receive a benefit, and would increase your benefit amount.

Remember, by working in retirement, you could also could contribute to an regular IRA account, a Roth account, or even an Health Savings Account if you are not on Medicare. Sweet Deal!

What do I do now?

Comprehensive retirement income plan

Social Security is one of the largest and most valuable assets that you will have in retirement, if you look at the present value of all of your future Social Security payments in retirement for the next 25-30 years, it could be worth $900k to over $2 million dollars depending if you are single or marred. ($2,500/month X 12 X 30 years for single person)

Tragically, the vast majority of Social Security recipients do not do any type of pro-active tax planning when it comes to the amount their Social Security benefits that are included in their taxable income, and they end up paying hundreds of thousands of dollars over their retirement life in additional income taxes because of it


Let’s  look at a 66 yr old married couple who needs $100k gross income in retirement. They get $48,000 in combined Social Security income, and take $52,000 out of their IRA to equal $100,000. Their total tax payable would be $9,734. Without proper tax planning in retirement, 69% of their Social Security benefits, or $33,200 is included in their taxable income. Remember, this is the same Social Security that there were already taxed on for their entire working lives via payroll deductions, and now they’re being taxed again when they receive it?

2015-vs 2016 SS taxable

2015 shows the couple doing no tax planning. Their ordinary and adjusted gross income is $85,200 after taxing the 31% of their Social Security benefits that isn’t counted toward income out of the equation. After their standard deductions and exemptions, their taxable income is $62,100 for a tax liability of $9,734.

2016 shows that same couple, with the same $100,000 of gross income, but with a little bit of pro-active tax planning. Here instead of taking $52,000 out of their 100% taxable IRA account, they only take $26,000 out, and pull another $26,000 from one of their FIVE COMPLETELY TAX FREE accounts that they had set up in advance with their Anthony Capital advisor. Income from these accounts don’t count towards Social Security taxes or Medicare Part B &D premium surcharges. They only pay $2,878 in taxes, saving them $6,856 a year.

Over a 30 year retirement life, saving $6,856/year in taxes with a little bit of planning grows to over $845,659 at 8%!!

You should get a 2nd Opinion review to make sure that you are claiming the correct amount of Social Security—the amount that will maximize your lifetime benefit. Also, you need to integrate your Social Security income with a comprehensive tax, investment, insurance, Medicare, Long Term Care, home equity, and legacy/estate plan. Request a 2nd opinion today, it could save you thousands!

Dave Anthony, CFP®,RMA®

Understanding how Taxes are calculated for Retirees

Understanding how Taxes are Calculated for Retirees


How much gross income you get in retirement and how much spendable, net-after-tax income you have in your retirement are two very different things. Most retirees like to find out how much real, after-tax income they’ll have to spend in retirement, so let’s look at a couple of examples.

There are a lot of conversations going on in the financial planning world about how to best “structure” your retirement income. By strategically combining a solid Social Security claiming strategy with smart IRA, Roth IRA, taxable brokerage, and investment grade life insurance contracts, you can tweak your retirement income to give you the highest net-after-tax income. Check it out:

Consider the example of a married 65 year old couple that has $61,130 of SS income and $15,200 IRA income. Total Income is $76,330 for the tax year 2014.

  • Social Security Benefits:                                               $61,130
  • Tax-Exempt SS Benefits:                                              ($53,630)
  • Tax- Included SS Benefits:                                            $7,500
  • IRA Withdrawal:                                                              $15,200
  • Adjusted Gross Income:                                                $22,700
  •     Minus:
  • Standard Deduction:                                                      ($14,800)
  • Personal Exemptions:                                                    ($7,900)
  •    Taxable Income:                                                             $0

That’s right, $76,330 of income, ZERO taxes. It depends on the tax of income—here is the same $76,330, but all Social Security Income:

  • Social Security Benefits:                                                 $76,330
  • Excluded SS Benefits:                                                     ($73,247)
  • Includible Social Security Benefits:                               $3,083
  • Standard Deduction:                                                      ($14,800)
  • Personal Exemption:                                                      ($7,900)
  • Taxable Income:                                                                  $0

Pretty sweet, right? $76k of Social Security benefits, all tax free because of the SS exclusion calculation, and your standard deduction and personal exemption.

How about $76,330 of 100% IRA income?

  • IRA Withdrawal:                                                               $76,330
  • Standard Deduction:                                                      ($14,800)
  • Personal Exemption:                                                      ($7,900)
  • Taxable Income:                                                               $53,630
  • Total Federal Tax:                                                            $7,136
  • Total State Tax:                                                                 $2,483

You had $76,330 of income, and paid $7,136 of Federal Income Tax.  That is an effective rate of 9.3%

Even if you add in your total Federal + State taxes of $9,619, your effective rate is 12.6%.

Social Security claiming strategies can help you combine your SS income, with IRA withdrawals and ROTH conversions to make for a fantastic retirement tax plan.

Remember, we have a marginal tax brackets in the US, so your marginal tax rate increase with the more retirement income that you have, but the effective tax rate is always lower. This is super important to understand, especially when 55 and above looking to sock as much money away for retirement as you can. Should you max out your IRA and 401(k) or pay taxes now and do a Roth account?

That is a discussion for another post, but it is good to review the 2015 tax tables, the marginal rates, and the corresponding effective rates.

2015 Tax Tables   Married Filing Jointly > 65   Tax Rate Tax for the bracket Total Tax Paid Income for the bracket Cumulative Total Income Effective Tax Rate
Standard Deduction + Exemption       $23,100 $23,100 0%
$0-$18,450 10% $1,845 $1,845 $18,450 $41,550 4.4%
$18,450-$74,900 15% $8,467 $10,313 $56,450 $98,000 10.5%
$74,901-$151,200 25% $19,075 $29,388 $76,299 $174,299 16.8%
$151,201-$230,450 28% $22,190 $51,578 $79,249 $253,548 20%
$230,451-$411,500 33% $59,746 $111,324 $181,049 $434,597 25.6%
$411,501-$413,200 35% $595 $113,025 $1,699 $436,296 25.9%
Over $413,201 39.6% TBD TBD TBD TBD TBD

Study this tax table for a little bit, and understand the significance of it. The standard Married Filing Jointly tax brackets are on the left. I’ve added up the standard deduction ($12,600 + $2,500 > 65) and personal exemptions ($8,000) figures for this married couple as well. This means that without any Social Security, the 1st $23,100 of income is tax free!

RMD Table for IRAs

If you withdrew $98,000 of income from your IRA pre 70.5, it is taxed at an effective rate of 10.5%! The RMD factor period for a 70 year old is 27.4. If you have a $100,000 IRA, your RMD would be $3,650 ($100,000/27.4) or 3.6%.

If 3.6% of your IRA is $98,000, then it would have a value of $2.72 million. What kind of income does it take to get to $2.72 million if you’re putting 10% of your income into an IRA each year for the next 30 years and earning 10%? About $165,000/year- this means that your 401(k) /IRA contribution would be taxed at 28% per year (the marginal tax rate for $165,000 income bracket) if you weren’t getting the qualified plan deduction. Getting a 28% tax deduction on your IRA/401(k) contribution and paying 10.5% tax on your withdrawal is a winning combination!

The tax on your IRA could be higher if you have other taxable income like Social Security, but even if you get $30k (maximum of 85% taxable) of that $98,000 from Social Security, you will still only have an effective tax rate of 14% on the IRA, less than the 28% you saved as a deduction when you made the contribution.

What about the IRA early 59 ½ penalty? Well, how many people are really going to retire before 59 ½ anyways? And if you have a good reason to take the money out, like medical issues, disability, college education, house down payment, or early retirement, (using the SEPP rule – Substantially Equal Periodic Payments, minimum of five years or age 59.5 whichever comes last) you can get around the 10% penalty.

Roth withdrawals are 100% tax free, and they don’t count towards your Social Security taxes or Medicare penalty fees. Same thing for investment-grade life insurance, but you should only do that if you’ve maxed out your IRA, and Roth account options, including the Back Door Roth strategy.

I hope this little review helps, for those of you that are serious about looking at putting together a smart tax optimization plan for your retirement, call my office or email me, and we’ll take 15 minutes to review your situation and what options you have.

Paying taxes in retirement is a choice! With proper tax planning and investment management you can avoid a lot of the silly tax issues that most retirees complain about—be smart and get a plan!