Rethink Your Rollover

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irs ira distribution calculator

Retirement account distribution options to consider

If you are considering early retirement you are required to make the right retirement distribution decision. Your decision will be based on your individual circumstances, but by all means, your goal is to preserve the retirement funds you have accumulated all your working years to ensure an income stream for the future.

There are several options to consider based on whether you choose to: (1) take your distribution in cash, (2) move your distribution to a rollover IRA or (3) remain in your former employer’s plan to defer taxes.

In particular:

(1)   Taking your distribution in cash

Choosing to collect your distribution in cash is subject to stiff taxation and penalties. Choosing such a distribution triggers by default a federal income tax withholding of 20% on the amount that is eligible for rollover. This means that you are automatically losing 1/5 of your retirement assets to federal taxation before state and local taxes are included. Besides, an additional 10 percent federal tax will be withheld as a premature withdrawal penalty if you collect your distribution prior to 59½ years old, if you are not disabled or leaving your job after the age of 55, unless you qualify for exception to these rules. Finally, you may be also subject to state taxes.

Generally, collecting your distribution now is a choice that you need to consider very thoroughly. Taxation and penalties may eat your retirement savings. However, what you are looking for is to maximize the return on your retirement assets and protect them from taxes and penalties.

(2) Moving your distribution to a Rollover IRA

Moving your distribution to a Rollover IRA offers significant protection from taxes and penalties and provides considerable benefits. These are:

• No current taxes on rollover amount.
• A wide variety of investment choices including stocks, mutual funds, bonds, CDs and U.S. Treasuries.
• Flexibility in withdrawal and check-writing services: a Rollover IRA allows you to establish an automatic withdrawal schedule write checks on your funds. Distributions are normally subject to taxations and an additional 10% premature withdrawal penalty if you collect your distribution prior to 59½ years old, unless you qualify for exception.
• Consolidation of multiple distributions: if you have participated in multiple employer-sponsored retirement plans, a Rollover IRA may offer you the opportunity to merge your accounts, simplifying retirement investing and income planning.
• Retirement assets grow tax-deferred.

(3) Remaining in your former employer’s plan to defer taxes.

By remaining invested in your employer-sponsored plan you avoid taxes and penalties and you are offered significant advantages. On the other hand, you have limited control over your investment options and more restrictions on accessing your money.

Here are some important considerations if you choose this retirement account distribution option:

• Often, retirement assets are subject to IRS and retirement plan restrictions on when you can withdraw funds form the plan. In addition, they may not offer flexibility in withdrawal services or check-writing available through other alternatives.
• If you are considering a wide variety of investment choices, including CDs and U.S. Treasuries or diverse growth investment vehicles such are growth mutual funds, you should make sure that they are offered from your employer-sponsored plan. If not, you need to consider an alternative option rather than remain invested in the plan. Also, if you choose to remain in the plan, you need to make sure that you will able to keep the same investment options if you decide to leave it. Some employer-sponsored plans may offer unique investment options such as investment contract options.
• You need to make sure that you comply with IRS minimum required distribution (MRD) regulations. By April 1 of the year following the year you reach age 70½, you are required by the IRS to begin taking distribution from your retirement plan. You may calculate the IRS minimum required distribution with your employer’s help to make sure you select the most advantageous method for your current circumstances and set up an automatic withdrawal.
• Often, employers encourage participation of retirees in employer-sponsored plan through regular meetings and special workshops. If you choose to remain invest in the plan, you maintain contact with your former employer. Besides, any assets qualified under the employer-sponsored plan are protected from the claims of creditors.
• Check you retirement plan provisions to make sure you are no charged any additional fees. There are retirement plans that charge a fee to participants who are no longer actively employed for services they had previously received.

Overall, making the right retirement distribution decision requires careful consideration of your options. You need to understand your individual needs, set your personal objectives and implement the most suitable strategy that will allow you to protect your retirement assets, offering you security for the years to come.

ira required minimum distribution

Question: Required minimum distributions on IRA and annuity?

I know when you reach the age of 70 1/2 in 2006, then you must make a required minimum distribution/withdrawal from the IRA by 4/1/07 and make an annual withdrawal after that. My questions are:

1) Can you calculate how much you need to withdraw for 2006 and 2007, and make one single withdrawal by 4/1/07 to satisfy the fact that you must make the first withdrawal for 2006 by this date, and a withdrawal for 2007?

2) If I purchase an annuity at a bank with my own money (non-employer related), do I need to follow this rule as well? What if I bought the annuity a few years ago and haven’t reach the period for making withdrawals yet?

Answer: 1) You can make a single withdrawal by 4/1/07 to satisfy the minimum distribution requirements for 2006 and 2007. Your 2006 RMD is based on the value of your account on 12/31/2005. Your 2007 RMD is based on the value of your account on 12/31/2006. You do not reduce the value of your account on 12/31/2006 by the RMD for 2006 if the withdrawal is taken in 2007.

2) The RMD rules do not apply to an after-tax annuity.

12) How bad are IRA RMD penalties?

ira required minimum distributions 2009

Question: Whats my Required Minimum Distribution this year?

Last year I didn’t have to take a distribution from my IRA, because of a one year exception for 2009. Now this year I don’t know what % I’m required to take. Do I continue on the chart as if I had taken a distribution, or do I just go to the next %. After I wrote this, I wonder whether you will be as confused about my wording as I am.

Answer: Each year stands on its own. There is a table based on your age that you use. Since even though you didn't take an RMD, you still got a year older, you'd go to the line on the table for your age this year.

Investing & Personal Finance Tips : IRA MDA Rules

minimum ira distribution calculator

Top 7 Year End Financial Tips

1. Review investment portfolios for potential tax consequences. Did you own Apple or some other

high performing stock this year? Then you might want to take a look at the taxable gains in your

portfolio. By selling the underperformers, you can reduce your tax liability from selling some of

those high performers. You can even have a net capital gains loss of up to $3,000 (consult your

tax professional).

2. Watch out for taxes on mutual funds. A common mistake investors make is to buy a mutual fund

in December. By law, mutual funds must pass any capital gains along to investors before the end

of the year. By buying a fund at the wrong time, you could owe taxes on the fund as if you had

held it all year long.

3. Required Minimum Distribution. If you turned 70 ½ before 2007, you must take a minimum

distribution from your IRA account by December 31st. Your advisor can help you calculate the

amount to be withdrawn.

4. Giving a gift to a charity. If you have a favorite charity, consider giving the gift of stock instead of cash. Stocks with large capital gains would be an excellent choice. Instead of selling them, you could donate them and avoid paying tax on the appreciation.

5. Add more to your 401k. To lower your tax bill, you may want to boost your 401(k) contributions,

but it is important to make sure you don’t go over the limit.

6. Pay off those deductible expenses before year’s end. If you pay off your state taxes or property taxes early, that accelerates your federal deductions. You can make an extra mortgage payment (the interest is deductible), or go for that dental work or surgery before year’s end.

7. Lastly, take this time to get organize. Put together a financial binder with your important

documents. Also include the locations of important documents(such as a will, safety deposit box location, bank accounts, etc.) This will make it easier for loved ones to track down documents in case anything should happen to you.

About the Author

John Rothe is President of the Rothe Financial Group, based in McLean, VA. For more information and to sign up for our monthly newsletter, visit http://www.therothefinancialgroup.com

How to Invest Your 401k Rollover

ira beneficiary options

Question: Question about a good Trust Account?

Before my question, let me give you some info about my current financial state.

I am only 24 but I am getting my whole life in order. I opened up several accounts, Checking, Savings, Money Market, and Roth IRA with Bank of America. I have another savings account with Watermark Credit Union in Seattle. I have a traditional IRA and a taxable trading account with Scottrade. I have $300,000 life insurance policy with Ohio National Financial Services.

Ok, Now I am about to put together a will in case of an emergency. I want to name my wife my beneficiary for all of my assets, and my daughter and son after her. I guess it would be better for all of my assets to be poured into a trust account.

Is it better to do it this way? What intuitions have the best options for trust accounts. Is it possible to have monthly payments to my wife from the trust instead of one lump sum. I just don’t know much about them.

Answer: You need an attorney who specializes in Estates, Wills & Trusts. Each state's laws vary. You and your wife probably need to set up reciprocal wills (the wills are a mirror image of each other) so as to protect each other and the children. With the kind of assets you have, do NOT buy a will form or try to do-it-yourself! It is imperative in your case to get a good attorney.

If you do not set up it properly, probate court costs and legal fees will eat up your entire estate and the kids end up with zip. The little you spend on an atty right now for your and your wife's wills will save you a fortune.

So many people hate to pay attorneys (can't blame them). But nothing is more costly than NOT getting one when you really need proper personal legal advice. This is one of those times.

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