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I see the arguments raging all the time about this sort of thing, so here's my experience -- with the proviso that it is offered as being worth what is charged: nothing! Nor should anyone necessarily follow what I have done, or what ANYONE on here necessarily suggests, for that matter, without doing your own research and giving some thought to YOUR situation!

I'm over 65. I have managed my own IRA for several years and have done okay with it, though, like most people, I lost some thsi past year. It happens to be with Fidelity, but I invest and revise as I see fit within there. I invest some in stocks, some in mutual funds, and I change at will -- sometimes not for a year or more, sometimes within the same day (day trading -- a little), somtimes a day or so, and everything in between! (My commissions are $8/trade for stocks and nothing among Fidelity's funds.)

Right now, I have it set up so I maintain a pretty good portion, about 20 percent, in Fidelity's FDRXX fund (money market, basically) and can shift some from there within 24 hours to my checking account whenever I choose, with a few clicks of the mouse. If I need a little extra, I withdraw it -- within reason -- while watching to make sure my investment actions and withdrawals are basically holding some semblamnce of balance.

Am I taxed on withdrawals?

I COULD be, I suppose, but even with an overall income of more than $40,000/year (including Social Security) for the two of us, I paid ZERO income taxes for the two years prior to last year, but miscalculated, took a bit too much, and ended up paying about $150 federal income tax last year. (That is total -- not just end of the year.)

IOW, as a retiree, don't be afraid of capital gains taxes on withdrawals, IF your income is low enough such that you are not triggering those taxes when you withdraw money from your IRA.

Meanwhile, remember that you are free to make all you like within your IRA, tax-free, until you take it out. Remember that! If you are lucky enough or smart enough to make a million dollars on investments within your IRA, that money is all tax free until or unless you take it out.

Another little special thing, though: I am staring down the road at the 70-1/2 "special situation" in a couple of years, so I'll have to deal with that, of course. We are REQUIRED to take a certain amount OUT each year, and probably be taxed one way or another on that. But that's not yet, thank God!

Final comment: People ALL need to do some thinking and some learning about their investments -- IRA, 401k and otherwise -- and NOT just hand their precious monety to somebody else, who may or may not have their best interests at heart, no matter his or her credentials or fees!

My two cents.

Vermonter
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hey Vermonter:
Interesting post. As a young guy, I don't even fully understand post-retirement IRA distributions, but yours clarified a bit.

I always thought that, upon retiring, one would start to take regular, equal periodic distributions from it annually, generally, but from what youre saying then one can somewhat randomly allocate it to a "sweep account," then transfer right over to checking?

Is that correct? I mean can you clarify with a hypothetical?
Say, in January, you w/draw a grand, then don't need any till June, hypothetically?
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jamiegumm:

I always thought that, upon retiring, one would start to take regular, equal periodic distributions from it annually, generally, but from what youre saying then one can somewhat randomly allocate it to a "sweep account," then transfer right over to checking?

Again, I'm over the age of 59-1/2, the age after which I can withdraw from my IRA without penalty. Taxes, maybe, but no penalty.

Again, do NOT accept my advice as worth much! It works for me -- period!

Yes, in my self-directed IRA, I can choose equal, periodic withdrawals -- or not. I choose not.

To use your example, say I needed a grand on January 9, and punched in that request in my IRA before 4:00 p.m. the day before (January 8) to transfer it to my checking account, or mail me a check or whatever. On January 9, there would be that grand, minus state or federal taxes, IF I elected to have them deducted. If not, there might be nothing deducted. Up to me.

Now, of course, at the end of the year, I MAY have to pay taxes then on my withdrawals, depending on overall income, deductibles, etc.

In other words, it is MY IRA to do with as I choose. Invest some or all in mutual funds or bonds or stocks of my choice, buy or sell equities when I choose to, etc., as long as I also pay commissions.

Again, that's a tricky thing! Should I be a jerk and do dumb things, I could lose all of my money!!! An advisor MAY be a damned good idea!

I studied all this for several years before dabbling, believe me, and I still make mistakes! But who doesn't? Name an "expert" who has done it all "right"!?

Vermonter
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Am I taxed on withdrawals?

I COULD be, I suppose, but even with an overall income of more than $40,000/year (including Social Security) for the two of us, I paid ZERO income taxes for the two years prior to last year, but miscalculated, took a bit too much, and ended up paying about $150 federal income tax last year. (That is total -- not just end of the year.)


Thanks for giving a real world example of a point I've been making on this board for years; that while Roths have some advantages, they don't necessarily offer a tax advantage over traditional IRAs.

-murray
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murray:

It may be "real world" for me, but may NOT work in everyone's situation, as I keep saying. Nor can I ever be sure it will work out for us in the long run.

My whole point in posting such things is to urge people to THINK and STUDY and LEARN, rather than blindly handing their money to anyone else, who may or may not be wiser than they are!

I charge myself very little, after all, but that may be all I am worth, too.

;)

Vermonter
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Of course. It's just that there seems to be an opinion that Roths are always better. It's always good to educate yourself first.

-murray
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Just a curious follow-up to Vermonter: Re. your initial informative post, when retired and taking those non-equal periodic payments, do you have to sell some other funds in order to have that "liquid" money in your "sweep" money market fund?

And is that how that would normally work if, say, taking your regular minimum distribution? Or in the latter case, typically in the first year, it's like, what, 4%, taken evenly out of each fund/holding? Just a curious young guy, but, hey, I plan ahead.
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I'm not Vermonter, but here's my $.02

Required Minimum Distribution (or RMD) -- and, BTW, I'm assuming that we're talking about a traditional IRA, since Roth IRA's don't have RMD's -- start in the year that you are 70 and a half (or very shortly shortly after that). The percentage that you have to take is a percentage of all traditional IRA holdings that you have. (You may have a multiple IRA's, for example.) It's not a percentage of a particular holding within a particular IRA; it's not even a percentage of one IRA (unless you only have one!)

There are no RMD's with a Roth IRA.

See IRS Publication 590 for details. http://www.irs.gov/pub/irs-pdf/p590.pdf That publication just gives us the rules in terms of current law -- and by the time you'll be in retirement the rules (laws) will probably change. Nevertheless, it's a good idea to become familiar with the present state of the law.

--SirTas
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Here's another link for a RMD distribution table: http://www.bankrate.com/brm/itax/news/20010321b.asp

FWIW, the RMD at age 70 is 3.6% of your IRA holdings. At age 80, it's 5.3%, at 90 it's 8.8%.

-murray
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A couple of comments. First, while it is true that a lower AGI results in a lower tax rate on your retirement distributions which are counted as income, it is more likely that if your itemized deductions exceeds your default standard default deduction, then you will be able to negate the impact of your retirement income. In other words, if you are still paying mortgage interest, paying full price for your health expenses, have capital gains losses in retail accounts, give a lot of money to charity, these are all factors that can offset income and lower your AGI.

Second, it is important to plan for those required retirement distributions from tax deferred accounts just as it is important to plan for when you might be subject to the Alternative Minimum Tax (AMT). A few years ago, DF was hit with a double whammy. His required IRA distributions unexpectedly triggered the AMT on this tax returns and he found himself with a larger tax liability than planned.

One option if you still have earned income in addition to these required distributions is to transfer the money into a Roth IRA. Now this does not help you avoid the tax liability, but if you do not need the income (since you are still earning money), you can at least plug it back into savings and avoid tax liability on future gains. I have not tried this myself, nor has DF as he no longer has earned income, but I think its a legit option.

Fuskie
Who thinks there are many lessons we younger Fools can learn from our more senior Fools...
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Roths? Yeah - they sound great, and they may be. I am not about to do anything, of course, since I am already retired, but I wish people luck with them.

However, I ask myself this question:

With literally billions and billions of dollars all stashed away in Roth "tax free" accounts, do we all really believe that the government won't find a way some day to get their hooks into some of that delicious money? Really?

(evil smile)

Good luck, folks!

Vermonter
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