Just to experiment with Roth IRA and Traditional IRA, I do have both. I have some holdings in Traditional IRA, but they are more like US$1000 and a few hundred dollars in some other firms.

So let's say if I work until the age of 61, and at 62, I completely stop working and have no income. At this point, is it just better to sell the Traditional IRA holdings and keep the Roth IRA holdings? (assuming I won't claim social security until the age of 67 or 70). Then the Traditonal IRA holdings sale is tax free if my gain is under something like $20,000. (roughly speaking, the first $20,000 income is tax free).

That's because I can let the Roth IRA holdings grow, and they are not subject to tax, but the Traditional IRA holdings are subject to tax, so when it is a "no income year", I had better sell the Traditional IRA holdings first?

  • Have you checked existing answers? Yes, the rule of thumb is to sell non-tax-sheltered investments first, then traditional 401k/IRA/equivalent (taxed only at withdrawal), then Roth 401/IRA/equivalent (taxed only at deposit). You may want to rebalance your tax-sheltered accounts as you spend down the taxable, to maintain your desired investment mix.
    – keshlam
    Jun 16 at 20:40
  • Why is the first $20k of income tax free exactly?
    – littleadv
    Jun 16 at 22:39
  • @keshlam does it matter to sell stocks in a regular individual account vs in Traditional IRA? If in Traditional IRA, it is not tax sheltered just like a regular account Jun 17 at 5:28
  • @littleadv isn't it due to standard deduction, etc, the first $20,000 income won't be subject to any tax? Jun 17 at 5:28
  • 4
    @keshlam not avoiding, deferring.
    – littleadv
    Jun 17 at 19:26

1 Answer 1


When you withdraw money from traditional IRA, it is considered "ordinary" income, i.e.: income taxed at the marginal rate.

Assuming you're a Single taxpayer, with $13,850 standard deduction. You withdrew $20,000 from your traditional IRA. Assuming you're not entitled to any other credits or deductions and have no other income, your AGI would be $20,000, and $6,150 would be your taxable income.

The marginal rate for the first $10,000 of your taxable income is 10%, so your Federal tax would be $615. You'll need to do similar calculations for State tax.

Generally when you are in a low income year and you expect your income to grow - it's a good opportunity to convert your funds from traditional IRA to Roth IRA, pay the low tax, and let the money continue growing tax free.

If you have taxable investments, it is also a good opportunity to utilize the capital gains tax rates for long term capital gains: if your total taxable income is up to $41,675 - you pay 0% (zero, nothing) capital gains tax (with some specific exceptions).

Source from the IRS for the marginal rates for ordinary income and for capital gains.


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