My mother passed away and left me her IRA. Now I have to withdraw the account to zero in ten years, but I have two more years to pay off my federal student loans on an income-based repayment plan. How do I minimize my income to keep my monthly student loan payments from exploding while also trying to spend down the IRA?
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brub888
4 months ago
You could try to “game” the system by not taking the RMD for two years and “timely correct” the “mistake”. I have no idea whether the current penalty structure will actually work for you as it appears to be written.
Under current IRS rules (which were significantly updated by the SECURE 2.0 Act), the penalty for failing to take an RMD from an inherited pre-tax IRA has been significantly reduced. Historically, the penalty was a 50% excise tax on the amount not withdrawn. As of the 2023 tax year and beyond, the rules are as follows:
- Standard Penalty: 25% If you miss your RMD, you owe an excise tax equal to 25% of the amount you were supposed to withdraw but didn't.
- Reduced Penalty: 10% If you "timely correct" the mistake—meaning you withdraw the missed amount and file the necessary paperwork (Form 5329) generally within two years—the penalty is reduced to 10%.
AdamA
5 months ago
Curious, and you don't have to say, but how much is the RMD each year? I ask because I also have an IRA from my grandma and I have to withdrawal it to zero in 10 years. The RMD however is way lower than the amount I take to get it to zero in 10 years. All that to say that it doesn't impact things that greatly in my scenario.
Anonymous
5 months ago
Since I’m on an income-based repayment plan for my student loans, I want to have the lowest possible income while I’m in repayment for the next two years. For that reason, I will take out my RMD during that time. After that, I will increase my withdrawals to zero out the inherited IRA by the 10-year mark.
Dorito
5 months ago
Hey, sorry for your loss.
Ideas to decrease your 2026 income:
- Max out your 401k asap ($24,500)
- Contribute to a separate Traditional IRA (up to $7500). Edit: If you have an employer-provided retirement plan then this may not be tax deductible.
- Get an HSA if you can and max out those contributions. ($4400)
Dollar amounts are nearly double if you are married filing jointly.
Daniel Seymour
5 months ago
Have you considered using the IRA to pay off the loans? Typically, it's not great to plan your financial life around trying to keep debt payments low as that will greatly increase the amount of interest you pay over time. It creates the negative equivalent of investing in the stock market with the main difference being that the interest is always there, regardless of market conditions, the state of your job, whether you have any assets, etc.
Student loans only go away when the government agrees to forgive them, you pay them off, or you die. They are one (if not the only) form of debt that can survive a chapter 7 bankruptcy. I'd form a plan to pay that sucker off as fast as you can. If that includes making large, tax-conscious withdrawals on the IRA over the next three years, I'd do it. The resulting stability from not having a debt payment would outweigh the perceived loss to taxes in my mind.
In any case, losing a parent is very difficult and I can't imagine how you're feeling right now as I haven't had a similar loss yet. I hope you either have or can find a good support network to help you work through the loss. Good luck!
Anonymous
5 months ago
I’m in the Public Service Loan Forgiveness (PSLF) program, so my $55k student loans should be forgiven in about 20 months. If my monthly payments remain the same, I will only pay about $7,500 in that time rather than the full $55k.
Daniel Seymour
5 months ago
That does change the calculus a bit. That program is notoriously difficult to deal with though. Here's hoping it works.
In that case, I don't think you have much in the way of options to lower your income. You have to take the RMDs and you have to stay employed for the PSLF program. Unless you find a job that pays less for a qualifying employer, you can't really do much.
Roberto Sánchez
5 months ago
Can you wait to start taking withdrawals until after the loans are paid?
Anonymous
5 months ago
No. By law, I have to take a required minimum distribution (RMD) starting the year she passed as she already started taking her RMDs.
Roberto Sánchez
5 months ago
Then, it seems like your only available option is to lower your other (i.e., non-RMD income) as much as possible. I don't know much about income-based repayment in general nor what specific program you are using, but increasing pre-tax contributions (i.e., to a 401(k), 403(b), or 457) might be something to consider if it lowers the income which the program considers for calculating your payment basis.
If it isn't possible to lower your other income, then just look at the situation for what it is. You have experienced a loss (I am sorry for your loss, BTW), but you are in the fortunate position of having received an inheritance. It may bother you a bit that for 2 of the next 10 years the government will get "more" than you'd like to give them, but in the end you come out way ahead. Put another way, paying taxes serves as a good indicator that you are winning the game.
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