We’re gathering your questions about all things money and finances. Then, each week, we get your questions answered by the people who know best.
We got this question from Nancy in Orland Park:
“I am in my 80s and have cash in my trust, traditional and Roth IRAs. Which would be more prudent to use for everyday living?”
Andy Timmerwilke, managing director and financial adviser at Merrill Lynch Wealth Management, said it would depend on the value of each account.
He said an adviser would want to start with looking at accounts with required minimum distributions, which for a traditional IRA generally starts when you reach the age of 73.
“Depending on the value of that distribution, if that’s enough to live off of on an annual basis historically most people would stop any [other] types of distributions from that point moving forward,” he said. “However, for a lot of people they need more than that.”
Timmerwilke said the next step would be to look at a person’s trust and its portfolio. In many cases, the trust will generate income through investments such as dividends and interest from stocks, bonds and cash. But he said it’s important to consider any tax implications.
“For instance, dividend-paying stocks pay a different tax rate than capital gains,” he said. “This is something you would want to check with your accountant or CPA [certified public accountant], as we certainly do not give tax advice. But it is important to look at those underlying investments to try to be as tax efficient as you can from the trust assets.”
He said a Roth IRA — similar to a traditional IRA except that qualified withdrawals are tax-free — offers a lot of flexibility for investors. Consumers don’t have to touch those assets and they’re not required to take an annual distribution.
“If those assets are not needed to live off of, a lot of times investors will invest those for longer-term time horizons, and they’ll end up passing those assets to the next generation,” he said.
He said you can also take a distribution at any time, especially if you’re 80 or older, with no income tax obligation.
“You can subsidize any shortfalls with some of those potential Roth IRA distributions,” Timmerwilke said.
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