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I need some advice! My mom turned 70-1/2 in 1998, and her 71st birthday is coming up soon (April 5). Is it necessary to begin taking money from her 401(k) soon? She is still working and plans to retire in November this year, and she doesn't want to touch her money unless she has to. Ideally, she wants to keep it invested. Do I need to do anything right away? If so, what/where should I invest her money?
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Whoa...

Regarding investing the money, what's wrong with leaving the money in the 401K? What is your mother currently invested in? If she has the money invested in a money-market, guaranteed income, or fixed income fund, have her move it to an S&P500 index fund, if one is provided by the 401K plan. If not, put it into an Equity Income fund, Dividend Growth fund, or a Growth and Income fund. If none of these exist, you may consider rolling the the 401k money into a mutual fund IRA, where you could invest in the above suggestions. If you roll the money, I do know that your mother would be required to start withdrawing part of the money immediately from the IRA, since she will be over 70 1/2 when she retires. I don't know if the same applies for a 401k.

One more thing, don't let me or anyone else tell you how to invest, unless you understand what the suggestions are. It's your mother's money and you & her are responsible for its investment.

Zev
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and One other thing just because the money is out of the 401k or IRA doesn't mean she has to spend it.
just that she can't leave it in a tax deferred account.

She can invest it in an index fund outside of an IRA or 401k.
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Greetings, TerryLane, and welcome. You asked:

<<I need some advice! My mom turned 70-1/2 in 1998, and her 71st birthday is coming up soon (April 5). Is it necessary to begin taking money from her 401(k) soon? She is still working and plans to retire in November this year, and she doesn't want to touch her money unless she has to. Ideally, she wants to keep it invested. Do I need to do anything right away? If so, what/where should I invest her money?>>

As long as your mom has not left her job, there is no need to worry. The age 70 ½ rule for her 401k plan won't come into play until she retires and stops contributing to that plan. Be aware, though, that if she retires in November, she must take and be taxed on a minimum required distribution for tax-year 1998 (the year she turned age 70 ½). To avoid that problem (i.e., income taxes on her wages plus additional taxes on the MRD), she may want to retire on 1/1/99 or later so the first MRD starts in tax-year 1999.

Regards….Pixy

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Thanks for the help! My mom currently has 401(k)s with Schwab and Vanguard set up as mutual funds, and she also has company stock. She is also eligible for a pension. I am not sure as to when she MUST start taking money out. I had heard some rumors as to the Feds changing the laws so that mandatory withdrawals are not required, and that's what I'm mostly concerned with. She and I want the money to stay in their current investment vehicles because they are doing very well. I'm checking things out now because if she has to take money out by her next birthday, I have a little over a month to take action. I wanted some outside feedback first before I talk to the folks at Schwab and Vanguard because I don't want us to get railroaded into making a bad decision going in to this blind.
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TerryLane writes:

<< My mom currently has 401(k)s with Schwab and Vanguard set up as mutual funds, and she also has company stock. She is also eligible for a pension.>>

I assume the money with Schwab and Vanguard is 401k plan money contributed to the plan in which she is currently participating through her employer. If so, she need do nothing with that money until she actually leaves her employ. She may already have reached age 70 ½, but as long as she remains gainfully employed by the employer sponsoring that plan, then no mandatory withdrawal is required. OTOH, if that 401k money is in a plan or plans with a prior employer or employers, then she must begin minimum required distributions (MRD) from those accounts no later than April 1 of the year following the year she reached age 70 ½.

<<I am not sure as to when she MUST start taking money out. I had heard some rumors as to the Feds changing the laws so that mandatory withdrawals are not required, and that's what I'm mostly concerned with. She and I want the money to stay in their current investment vehicles because they are doing very well. I'm checking things out now because if she has to take money out by her next birthday, I have a little over a month to take action. I wanted some outside feedback first before I talk to the folks at Schwab and Vanguard because I don't want us to get railroaded into making a bad decision going in to this blind.>>

Money in the plans sponsored by her current employer does not have to be distributed until April 1 of the year after the year she retires. Be aware, though, that if she waits this long to take an MRD, she will have to take two MRD in the same year. One MRD will be for the year she retired, and the other for the year the MRD begins. Example: She retires in Nov 99 at age 70 ½. She must take an MRD for 1999, but she can wait until April 1, 2000 to do so; however, that MRD if taken then is still for 1999. She must take the MRD for 2000 before the year is out. Thus, by waiting until April 1 to begin, she may incur a much higher tax bill because of receiving two MRD than she would have had she taken the first distribution in 1999.

Regards….Pixy


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