Another question:
If she takes out all of her IRA to invest in this Retirement community, is it still taxed at regular income tax rate? Is there any loophole to try to keep more of that money?
It would be nice to be wrong, but I think so.
2019 taxes:
15% of SS is not taxable. Also check to see if the $4,800 from insurance counts as income.
$55,600 (total income stated by you) - 2,970 (non-taxable SS) - 12,200 (standard deduction) - 1,650 (senior standard deduction) = 38,780 taxable (near the bottom of 22% bracket).
Taking all of the IRA in 2019:
~$43,720 remains of the 22% bracket for 2019. The next $75,000 comes from the 24% bracket, the remaining ~$16,280 would be taxed at 32% if taken in 2019. Total income tax on the $135k IRA withdraw would be about $32,830, an effective rate of 24.3%
Taking half in 2019 and half in 2020:
2019:
~$43,720 remains of the 22% bracket for 2019. ~$24,780 would be taxed at 24% in 2019.
2020 (using 2019 tables):
Pension + Insurance + 85% SS = $42,630 - 12,200 - 1,650 = 28,780 taxable (mid 12% bracket).
~$9,920 remains of 12% bracket, $43,800 in 22% bracket, remaining ~$13,780 in 24% bracket.
About $29,480 in taxes on the $135k IRA withdraw (effective tax rate of 21.8%) saving about $3,350 in federal income taxes by splitting between two tax years.
If you can find other sources for about $40k, you can avoid the 24% brackets. The $40k could likely be paid back with withdraws in 2021-2025 that fit within the 12% bracket saving another $4,800 in federal taxes.