After you (or your parents) reach age 70-1/2, minimum distributions must come out of an IRA each year. However, there’s no reason you can’t take more than the minimum, if that’s what you need to live on. If you draw down more than the minimum each year, you may eventually use up your entire IRA. Then what?
Then you can start to sell stocks and bonds and mutual funds held in a taxable account to support your retirement. You can dispose of low-appreciation securities or even securities you’re holding at a loss to lower your tax bill. Even if you have to realize some gains when you sell securities, they probably will qualify for the 20% rate on long-term capital gains. As of 2001, newly-acquired assets held for five or more years qualify for an 18% tax rate. For low-bracket taxpayers, the five-year capital gains rate falls to 8%.
Thus, spending down your IRA while holding onto appreciated securities makes even more sense now because the latter may qualify for special low rates.
