Taking IRA Distributions Without Tax Consequences “The IRA Offset Distribution”

There are many situations where you may elect to take IRA distributions prior to the Required Minimum Distribution (RMD) age 70 1/2 time frame. In the event you have significant tax-deductible expenses against your income, you MAY want to consider an IRA Offset Distribution (self coined name for ease of remembrance.) Please note, not all deductions are offset against your IRA distribution.

In our Double Whammy Post we discussed the RMD, and why you may not want to wait until the last-minute to take your RMD distribution. The following is another example of when you may want to elect to take an early IRA distribution.

As a reminder, as an owner of an IRA/Pre-Tax vehicle, your window for elective, non-constrained distributions, is age 59 1/2 to 70 1/2. In the following examples we are specifically analyzing this 11 year window.

Here are a few situations where you may want to consider an IRA Offset Distribution. This list is not exhaustive, and is meant to give you ideas that might “ring a bell” for your situation:

  • Tax Deductible Health Care Expense – Major medical expenses such as hospitalization, assisted living, co-pays for medical, or various other health related expenses may trigger a window for a favorable taxable IRA distribution offset. These type of expenses are generally not carried forward on your taxes, in other words, use it or lose it.
  • Mortgage Interest Deductions – If you have significant mortgage interest expense, you may want to consider an IRA Offset Distribution to take full advantage of the deduction your interest is creating. This type of expense is not generally carried forward, again creating a use it or lose it situation.
  • Net Operating Losses – NOL’s as they are often called MAY lend themselves to an IRA offset.  NOL’s come in various flavors and you should be sure to confirm your NOL will be offset by your IRA Offset Distribution.

These type of expenses must match the year of occurrence, so if you have had major expenses this year, 2011, your deadline for and IRA Offsett distribution, is 12-31-11!

STOCK/ACTIVE INVESTMENT LOSSES ARE NOT AVAILABLE FOR AN IRA OFFSET – Unfortunately our current tax code does not allow for investment/active related losses to offset against IRA distributions. Tax laws change, and we can hope for future relief, but this is generally not an option at this time.

Never attempt to fit into one of these situations if you do not belong, but do remember as former Supreme Court Judge Learned Hand has said, “…It is not our american duty to over-pay taxes…”

Please consult your tax advisor for your specific situation, this article is not meant as a recommendation to take an IRA Offset Distribution, and is for informational purposes only.

Have a  Great Day!



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