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Author: billteer Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 76398  
Subject: Mandatory IRA Withdrawals Date: 8/24/2000 2:09 PM
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Hi:

I know that there are rigid IRS rules regarding
mandatory withdrawals from IRAs beginning at
age 70.5. But I don't know exactly what they
are and I don't know how to maximize my income
and minimize my taxes as I withdraw.

My IRAs are somewhat complicated, but substantial.
They are under 8 different custodians and in 18
different investments. The total value is
>600K currently allocated as

Equities 5%
Mututal Funds 66%
Cash 6%
US Obligations 16%
CDs 8%
100%

Questions:
1. What is a good source for a simple explanation
of the withdrawal rules and the possible
penalties?
2. Once I figure out how much I have to withdraw,
do I have to withdraw from all equally or can
I wipe out one before moving to the next?
3. Shouldn't I go to a professional financial planner
to get advice?

There is some time pressure as I am now 66. I'm
still working full time, so I don't need any
withdrawals now, but seventy is fast approaching.

Thanks,
Bill


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Author: brewer12345 Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 24324 of 76398
Subject: Re: Mandatory IRA Withdrawals Date: 8/24/2000 4:10 PM
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I can't help you with the nitty gritty of exactly what you must withdraw, but I am under the impression that its a fixed percentage per year. If that percentage would bump you into a high bracket, then you might want to start takling distributions now, provided you can pull the money out at a lower tax rate.

As far as the number of accounts goes, you might want to think about consolidating the accounts. I can't imagine keeping track of all that stuff! When you have to start taking distributions, the IRS views all those accounts as one lump sum, so as long as you take out the mandatory minimum, the IRS doesn't care which account(s) the money comes from.

You can, of course, go to a financial planner. However, this stuff really isn't that complex and if you take the time to understand it you will save yourself the advisor's fees and you won't have to depend on someone else's judgement calls.

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Author: Chipsboss Three stars, 500 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 24326 of 76398
Subject: Re: Mandatory IRA Withdrawals Date: 8/24/2000 5:36 PM
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for billteer,

First, there is no fixed percentage that you must draw each year. There is, however, a percentage minimum that you must draw that depends on your age and therefore changes each year. Below 70 1/2, that minimum is zero.

Just for the record, you are not obligated to spend your withdrawal.

1. What is a good source for a simple explanation
of the withdrawal rules and the possible
penalties?


I find the rules to be straightforward. The government's official reference is at http://www.irs.ustreas.gov/forms_pubs/pubs/p590toc.htm Publication 590. Individual Retirement Arrangements (IRAs), (Including Roth IRAs and Education IRAs), and its Appendix E, which has two tables. http://www.irs.ustreas.gov/forms_pubs/graphics/15160x17.gif . Interpreting that document is not tough, but I wouldn't leave that task to anyone else.

Excerpts:

<blockquote>
After age 59 1/2 and before age 70 1/2. After you reach age 59 1/2, you can withdraw assets from your traditional IRA without having to pay the 10% additional tax. Even though you can make withdrawals, you do not have to withdraw any assets from your IRA until you reach age 70 1/2.
...
There are several exceptions to the age 59 1/2 rule.
...
Figure your required minimum distribution for each year by dividing the IRA account balance (defined later) as of the close of business on December 31 of the preceding year by the applicable life expectancy (defined later).
...
Life expectancies are determined using life expectancy tables like Tables I and II in Appendix E.
</blockquote>

You have various choices of beneficiaries and whether to recompute your life expectancy each year. If you recompute, you are allowed to use up your IRA over a period reaching your 120th birthday. If you do not recompute, your life expectancy is computed to fall at the rate of one year per year, so you must withdraw all of it much sooner than that. The advantages of recalculating or not depend on your purposes and your intentions for your heirs, if any.

2. Once I figure out how much I have to withdraw,
do I have to withdraw from all equally or can
I wipe out one before moving to the next?


Quotation from Pub 590:

<blockquote>
More than one IRA. If you have more than one traditional IRA, you must determine the required minimum distribution separately for each IRA. However, you can total these minimum amounts and take the total from any one or more of the IRAs.
</blockquote>

As long as you meet the required minimum withdrawal, IRS doesn't care which IRAs you use. But, please, interpret the reference document for yourself.

3. Shouldn't I go to a professional financial planner to get advice?

No. I would advise seeking professional help only if doing it on your own, reading the IRS publications and consulting Fool boards, leaves you feeling lost. The professional has an inevitable conflict of interest, I believe, where he needs to make you dependent on him to keep those fees coming in. In your interest, his first pieces of advice should be "Fire me and do this for yourself, for free, with a guarantee of no conflict of interest. If you won't fire me now, let me show how to do this for yourself in the future, so that you don't need any help after today."

the grizzled Chips



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