What are the Age Rules Regarding an IRA Withdrawal?

Posts Tagged ‘Roth IRA’

What are the Age Rules Regarding an IRA Withdrawal?

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Q: I am retiring and want to roll over my deferred account to an IRA. Which is the best IRA account? And how old do I have to be to withdraw without getting penalized? And what will the tax rate be?”

A: Under current IRS guidelines, you must be at least 59 1/2 years old in order to make a withdrawal from a traditional IRA without being hit with a 10% penalty.

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Why Was I Taxed On An Early IRA Distribution?

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Author: The Money Coach

Q: My husband and I each took $10,000 early IRA distributions to help pay for a construction loan on a new house. The amount is exempt from the 10% penalty but I do not understand, when it comes to taxes, why it is considered taxable income when I paid income taxes on that money before I put it into an IRA?

A: IRA rules are tricky because there are really two types of IRAs. With the traditional IRA, you put in money and get an upfront tax deduction (provided you meet certain income guidelines, and other requirements). Then, when you take the money out during retirement, you’re taxed on that withdrawal. The point of having a traditional IRA is, of course that you’ll save for your Golden Years. And the government gives you a tax break for doing so – in the form of letting your capital gains go untaxed until you start to withdraw money. As a saver/investor, the hope that the traditional IRA is a good deal based on the assumption that once you are in your post-working years, you’ll be in a lower tax bracket than you were when you were generating an earned income.

But with a ROTH IRA, it works differently. You make contributions and get no upfront tax deduction. Instead, the money grows in your account and those capital gains aren’t taxed — even once you take them out. So while a traditional IRA gives you an upfront tax break, the ROTH gives you a tax break on the back end.I suppose the reason your IRA withdrawal, and all such withdrawals, are taxable is because you did get the benefit of having that money grow tax free within the IRA. In other words, the funds appreciated (or had the potential to appreciate) and collect interest and/or dividends. Such appreciation is considered capital gains and is taxable under current law.

I Was thinking About Going with Edward Jones for a 401(k). Is this a Good Idea?

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Author: The Money Coach

Q: I am 26 and Behind in the Investing Game. My Bank Offers a ROTH IRA and I’m Going With That. I Was thinking About Going with Edward Jones for a 401(k). Is this a Good Idea?

A: Congratulations on getting started investing. You’re not too late to the investing game: you’re right on time. A lot of 36, 46 and 56-year olds wish they’d started when they were 26, as you are. So don’t beat yourself up at all about your age. Glad to hear you’re starting a Roth IRA. It’s a great way to save for retirement. Regarding the 401(k), your investment options will be dictated primarily by the offerings that your employer has available. I can tell you in general that Edward Jones has a good reputation and is known for quality financial advice. However, the mutual funds you choose are equally important. So the main question you need to find out tackle is: based on my investment objectives, how much of my 401(k) should be in stocks, bonds, and cash? Then you can think about what funds or stocks to buy to match those objectives.

If you don’t have an adviser helping you, I’d strongly suggest that you get a professional to create a financial plan for you and offer you some specific recommendations based on your goals, risk tolerance and personal circumstances. You can get good help from the National Association of Personal Financial Advisors (http://www.napfa.org) or from the Financial Planning Association (http://www.fpanet.org).

Target-date mutual funds: Are they still right for you? (askamoneyexpert.com)
5 great money ideas for 2011 (askamoneyexpert.com)

I Have No Savings and am Struggling. What Should I Do?

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Author: The Money Coach

Q: I’m 57 Years Old With Serious Arthritis. I Work With Severely Emotionally Disturbed Boys. I am Considering Resigning from This Position, Taking Money Out of my 401(k) Plan and Rolling it Over, Minus a Small Deduction for my Use and to Pay Off Debt. First I will Apply to Work in Education as a Teacher Assistant Making Less Money But Not As Difficult As My Current Job. I Have No Savings and am Struggling. What Should I Do?

A: Well, only you know whether or not it’s time for a major career shift. But based on what you said, you seem to be a bit overwhelmed in dealing with such an emotionally demanding job. You said you’ve worked there since 1997 and have been in the special education field since 1990, so the good news is that it’s not too much of a stretch to take the skills and experiences you’ve amassed over 20 years and apply them in the general education arena. From a financial standpoint, however, since you have no savings and described yourself as struggling to make ends meet, I would advise you to be cautious about taking money out of your 401(k) plan. You said you planned to roll it over. But into what? Your message didn’t indicate specifics. Into an IRA or something else? Read this post about Roth IRAs and this one as well about the benefits of having a 401(k).

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Posts Tagged ‘Roth IRA’