If you are not near or in retirement, you can skip this post. But whether or not you are near or in retirement you still might want to review what I wrote two months ago http://twocents.blogs.com/weblog/2009/03/a-modest-proposal-liquidate-iras-in-2009.html on the subject based on the fact that US taxes are going up in 2010.
Here's part of what I wrote about my IRAs two months ago: "...for someone in my position, the IRA is a looming tax obligation since every dollar coming out of an IRA account is taxable at ordinary income tax rates. So this modest proposal is a personal "diary entry" on my private blog which is totally non-commercial. This is only what I am thinking, and I am not recommending this to anyone else.......... the reasons for emptying a regular IRA in 2009 and/or in 2010 are 1. you're retired or may soon be; 2. taxes will be going up so you will pay more tax on IRA withdrawals later if you wait; 3. you will avoid tax bracket upwards creep due to the always increasing IRS-mandated Required Mandatory Distributions (RMD's) after age 70; 4. you want to avoid even the remote chance that private pensions could be nationalized; and 5. you want to take advantage of a one-time removal of limits on conversions to a Roth IRA and the two year tax payment option available in 2010."
Since I wrote this the Obama administration has vowed to repeal the one year Federal estate tax holiday for 2010, so I wouldn't be surprised if the 2010 one year Roth conversion tax advantages were also repealed since democrats hate Roth IRAs almost as much as they hate rich people and zero estate taxes. If so, the main remaining advantages to cashing out in 2009 are 1-4 above.
Further background is that I have 35% of my invested assets in tax-deferred accounts and 65% in fully taxable accounts. So the tax-deferred accounts are significant but not the whole banana. And I am not including Social Security payments received in this discussion, but one could conceivably capitalize them at 5% such that if you were to receive $25,000 per year from SS its estimated annuity value would be $500,000.
The disadvantages to cashing out your IRA in 2009 are paying a one time fairly high income tax rate and getting bumped into other various "tax the rich" traps affecting Social Security, Medicare parts B and D costs,etc. Fortunately we can wait until much later in the year to make the decision and see how the tax planning and gains and incomes are going, and wait to see what other plans Obama has for us.
Putting this all together, what could I do with the 35% in self-directed tax-deferred funds and 65% in taxable funds to save the bacon and legally pay as little tax as possible IF i don't close out the tax-deferred entirely this year? Everything that comes out of an IRA or 401K is 100% taxable at US Income tax rates, whether it was a long term capital gain or ordinary income or gold profits, and after age 70 there is a mandated yearly increasing stream of required withdrawals. Therefore in my case it makes no sense to have gold or stocks in the tax-deferreds, and I don't.
