After age 59-1/2, you can take distributions from your 401K (limited only by your employers rules) or from your IRA. These distributions are penalty free, but you do have to pay income taxes on the portions that were not previously taxed. Your gains and your pretax or tax deductible contributions.If you have after tax contributions or nondeductible contributions mixed into the account, then a portion of your non-taxable portion is allocated to each distribution. Hence, your distribution is not fully taxable.As to when the account becomes tax free, the answer is never. You can convert it to a Roth and pay taxes on the amount converted. Then any profits from that date are tax free. You can also make donations to charity to reduce the tax hit. But generally the taxes are inescapable. Even if someone else inherits the account, they will have to pay taxes when they take distributions.Hence, some suggest that when using your 401K or IRA assets to figure your requirement plan, don't forget the income tax that will be due. Some suggest deducting 20% or so for the calculation to consider this point.Indeed, when we talk about mandatory distributions at age 70-1/2, that is mostly about forcing you to begin paying income taxes on the account.
Best Of |
Favorites & Replies |
Start a New Board |
My Fool |
BATS data provided in real-time. NYSE, NASDAQ and NYSEMKT data delayed 15 minutes.
Real-Time prices provided by BATS. Market data provided by Interactive Data.
Company fundamental data provided by Morningstar. Earnings Estimates, Analyst Ra