IRA distributionHow will you take your IRA distribution? With help from a financial consultant, I hope, so that you don't lose more than you must to taxes!First, you might want to consult with a retirement planner to assure you take IRA withdrawals correctly (and don't overpay taxes on your withdrawals). Any distribution or withdrawal means taxable income. By IRA distribution or IRA withdrawal, I mean taking cash for your own personal purposes. OK? If, instead, you took an IRA plan to plan rollover, the monies aren't taxed as you aren't in receipt of them... you simply moved your monies to a different plan which isn't taxable yet (until you actually cash them out). Second, IRA distributions and taxes depend on your age: IF you take an IRA withdrawal before aged 59 1/2, you will pay a 10% early withdrawal penalty PLUS your taxes. Assume you take a $10,000 in IRA distributions in 2010. You also earned $35,000 as you just retired. With $35,000 earnings for 2010, you are in a 25% Federal Income Tax bracket. Fine. You owe $2500 (25% of $10,000) to the Federal Government. But because you are only age 58, you owe another 10% penalty (before age 59 1/2), That's another $1000 (10% of $10,000 withdrawal). $10,000 IRA Withdrawal That's a big hit to your withdrawal – think twice! *There are 4 reasons that you won't pay the penalty, Death and Disability being the ones used most. You can take distributions (any or all of your funds) at any time. You will pay income taxes at on your tax return. However, if you withdraw your monies from a Simple IRA within two years of when you first deposited it, you will pay a 25% penalty. In the above scenario, instead of losing 35%, you would lose 50% (half!!) of your withdrawals! Yikes! At age 70 1/2, you must begin Required Mimimum Distributions. This applies to most retirement plans like IRAs, Deferred Compensation, SEPs, 401K plans, etc. Some plans allow you to take the required amount from any plan, others require you to take the distribution from that specific plan. The plan will calculate the minimum amount, but you can take more (hey, it's your money!) and will pay taxes on whatever the distribution amount is. If you don't take the required distribution amount, the penalty is 50% of it. Yes, half of that distribution goes back to the Feds as a penalty, then you pay taxes and keep the small amount that is left. This is a huge penalty – don't let it happen to you or your family! New! CommentsPlease consider leaving your two cents... questions and comments about what you just read! It only takes one retirees thoughts to help another retiree... |
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