The Pro Rata Rule

It’s not uncommon that people can have both pre-tax dollars and post-tax dollars in their IRAs or qualified plans. This happened under the following circumstances: Qualified plans allowed non-deductible contributions (i.e. the employee’s contributions had already been taxed). IRS rules allow contributions to IRAs that may not be tax deductible. Since these funds have already […]

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Taking Distributions Early

Based on what we just covered about wanting to defer distributions to defer taxes, why would anyone in their right mind take distributions early? It can actually save taxes in certain situations. Example Bill and Linda are both retired, have large IRAs, and are 60 years old. Their taxable income will be $30,000 this year. […]

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Roth Distributions

We talked about Roth conversions earlier. Now let’s look at how you get the money out of a Roth. You first want to do some careful planning here. These funds are really special as they grow tax-free. Some people get confused and think they should spend interest before they spend principal. So they will spend […]

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Pre-59 1/2 Distributions

You may be among those that retire early and want to use your retirement funds. The problem is, though you’ll have to pay the 10% early withdrawal penalty. Fortunately, there is a way around this. Section 72(t) of the Internal Revenue Code allows taxpayers of any age to take a series of substantially equal periodic […]

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Mandatory Distributions

IRS imposes some stiff penalties if you miss your required minimum distributions. If you are the owner of a traditional IRA, you must start receiving distributions from your IRA by April 1 of the year following the year in which you reach age 70½. April 1 of the year following the year in which you […]

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Apply Rule 72t

There are three ways to calculate 72(t) distributions. The Minimum Distribution Method is calculated the same way as required minimum distributions when account owners reach their required beginning distribution date. This method will generally produce the lowest annual 72(t) payments since it is based on the longest life expectancy. The required minimum distribution method consists […]

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Retiring or Leaving the Company

Whether you are retiring or changing jobs, you need to know what to do with your employer sponsored retirement plan before your leave. Once you leave a job for whatever reason, you can choose to: Rollover the money into an IRA. Take the lump sum and pay the income tax and potential penalties. Leave the […]

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