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Minimize taxes on IRAs to help maximize retirement cash flow

Think about tapping your IRA before claiming Social

Think about tapping your IRA before claiming Social Security. Credit: iStock

You've done well if you enter retirement with enough assets to help relatives who may need a hand now and then. That doesn't mean you have to be overly generous to Uncle Sam.

In retirement, one way to maximize your cash flow is to minimize your taxes. But any money you pull from a traditional IRA is, in most cases, taxed as ordinary income. Some retirees with limited income find when they tap their traditional IRA, the amount they withdraw pushes them into a higher tax bracket -- and worse, it may expose their Social Security benefits to being taxed.

If you have a large amount of assets in a traditional IRA, consider converting some to a Roth tax-free account, says Susan Garland, the editor of Kiplinger's Retirement Report. Garland recently examined the best ways to tap your portfolio with an eye on minimizing taxes ( Be aware -- the amount you convert from your traditional IRA to a Roth is considered taxable income, and if it pushes you into a higher bracket, your tax bill will be bigger.

The solution: Do it in stages. "It doesn't have to be all or nothing," Garland says. "If you're 65 and you're retired, convert a little bit every year for maybe five years."

As for Social Security, Garland says the conventional wisdom is correct for most people: Avoid taking it as long as possible up to age 70. If you claim Social Security at age 62, your benefits will be 75 percent of what they would be if you wait until 66 and about half of what you can expect if you wait until 70.

And here's some unconventional wisdom that may sound frightening: Think about tapping your IRA before claiming Social Security. "For retirees with portfolios of between $200,000 and $600,000, your nest egg will last the longest if you delay Social Security and take IRA withdrawals in the early years of retirement," Garland says. The bigger benefits you get from waiting may also mean you don't need to take large, taxable withdrawals from your traditional IRA later on.

Another reason to tap the IRA first and delay taking Social Security: As much as 85 percent of your benefits could be subject to taxes if what the IRS terms your "provisional income" is high enough. For those receiving Social Security, money withdrawn from a traditional IRA is counted in the provisional income formula. (Money withdrawn from Roth accounts is not counted as provisional income.) AARP has a good primer on provisional income and Social Security at

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