IRA Distribution – Choosing Your Investment Strategy

December 13th, 2009 by David Leave a reply »

IRA distribution is a serious topic that many people have confusion with. It’s not surprising, and since there are so many different things that you have to know that you NEED to make sure that you get the facts. You could ask five different people about rules, penalties, and other details of distributions and they might give you 10 different answers. Making the wrong move could cost you a lot more than you think, so make sure that you are fully prepared. There are different types of IRA accounts, and each has its own rules. Here are some things to remember.

-IRA distribution for a traditional IRA is different than for a Roth IRA. It might also be different when you have employee-sponsored versus individual IRA accounts. Make sure that you know the rules for YOUR account. If you have questions then that is where your financial advisor will come in. If you don’t have a financial advisor, you should get one.

-Traditional IRA contributions can be tax deductible and are not allowed to be taken until you are age 59 ½ with a few exceptions. Roth IRA contributions are made with post-tax dollars, and can be taken out at any time without income tax penalties.

-Roth IRA accounts are allowed to carry on past the age of 70 ½, while traditional IRA accounts must be withdrawn to a certain amount at this age. 50% penalties are in store for those who don’t take as much as they are supposed to from their traditional IRA, and this can clean you out quickly. For example, if you had to take out $7,000 during a year and only took out $3,000 that will cost you $2,000 in penalties, which is 50% of the balance that wasn’t taken. That’s a lot of money.

-Contributions can be made after age 70 ½ with Roth IRA accounts, even if you are going through IRA distribution at the same time. A traditional IRA will not allow contributions after this age.

These are just a few tips to help you understand IRA distribution. You must understand the rules regarding the IRA that YOU have, because every account is different. Make sure that you are aware of what you have to take out and what the consequences are for not doing so. Ultimately, you might decide that a Roth IRA is better because of the lack of penalties, but that’s a choice that you’ll have to make.

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