Why Raiding Your IRA Can Be a Costly Mistake

With the global pandemic causing record-breaking job losses and wreaking havoc on our economy, it can be tempting to withdraw large amounts of cash from your IRA to have on hand. But before you raid your IRA at any time, we encourage you to think carefully about how much you actually need

Individual Retirement accounts are are designed to provide additional financial security as we get older, but unlike a traditional bank account, access to the money in these accounts—particularly in times of financial crisis—can come at a significant cost. 

For this year, the CARES Act has eased some restrictions and penalties for qualifying individuals whose income has suffered as a result of COVID-19, like allowing taxes on IRA withdrawals to be spread over three years, but it is still recommended to exhaust other cash resources before tapping into retirement accounts for emergency funds. 

Consider this: Any withdrawal from your IRA is treated as income for that year. So substantially large distribution amounts could potentially bump you into a higher tax bracket, which translates into giving up more of your hard-earned savings than you intended.

And while there are no restrictions or requirements on IRA distributions between age 60 and 70½, the more you take out, the more income tax you will pay—most likely at a higher rate than if you wait until your required minimum distributions kick in. 

So before you make any additional withdrawals from your IRA, we recommend taking a moment to determine how much you actually need right now. While the idea of using your retirement account as a rainy day fund might seem attractive in the short term—particularly in uncertain times—the tax ramifications down the road can prove far more costly than riding out the storm. 

Where Can I Find My AGI?

Our previous posts shared information about the stimulus timeline and how to calculate the amount you can expect to receive based on your Adjusted Gross Income (AGI). This has led to people wondering…Where can I find my AGI?

The answer is simple. Your AGI is on your tax return, and here is how to find it:

  • If you have filed for this year, the IRS will use the number found on Line 8b of your 2019 return, as shown below.
2019-AGI-line-1040 2
  • If you have not yet filed this year, IRS will use the AGI found on Line 7 of your 2018 return.

Once you know your AGI, you can visit the IRS site to check the status and calculate your expected payment.  

Important Notes:

  • If you did not file taxes for 2018 and 2019, you can enter your information through the IRS online tool found at this link. Non-Filers: Enter Your Payment Info 
  • If you receive Social Security or Veteran’s benefits, you should automatically receive your stimulus payment.

Stimulus Check Distribution Timeline

Earlier this month Congressman Richard Neal, the Chairman of the House Committee on Ways & Means, issued a release detailing the timeline for economic stimulus payments. 

This is the best information we have seen regarding the plan for distribution of money to US citizens under the CARES Act, and we have listed some of the key takeaways below. You can click here to read the full letter.  

Key Takeaways:

  • IRS began issuing payments the week of April 13th.
  • Individuals who have provided direct deposit information to the IRS, either on their 2018 or 2019 returns or through the “Get My Payment” link should see payments first. 
  • Paper checks will be issued in reverse “adjusted gross income” order—starting with people with the lowest income first.
  • Paper checks for all others will be issued at a rate of about 5 million per week, which could take up to 20 weeks.

How Much Stimulus Money Should You Be Getting?

We have created the charts below to show you how the payments are being calculated, and to help figure out how much you should expect.

Stimulus payment graphic copy
Stimulus payment graphic chart copy 2

Please note that payments are not being delayed if your 2019 taxes have yet to be filed. IRS will use information from 2018 returns when necessary for non-filers and regular taxpayers alike. We encourage you to access the Get My Payment tool on the IRS site to determine your actual payment amount, as well as to provide your most up-to-date bank and/or mailing information, if necessary. 

BBS Office Remains Closed

We Remain Closed in Compliance with the Stay at Home Order

Our office will remain closed until statewide restrictions are lifted. For those of you whose returns are still in process, we are working to set up one day a week for you to sign and retrieve your documents.

If you prefer, we are more than happy to send your documents via US mail. Stay tuned for more information!