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I am approaching the magic age of 69.5 ;(, and as I understand it, should begin withdrawing funds from my retirement IRA to comply with the 70.5 rules. Since most of my retirement fund is now in individual stocks, I intend to gradualy sell off the dogs, pay the taxes, and reinvest the remainder into better dividend paying stocks. All comments regarding this stragety, or a better way to comply with the IRS rules greatly appreciated.
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Sounds good, IF you can accurately identify the dogs.

db
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I am approaching the magic age of 69.5 ;(, and as I understand it, should begin withdrawing funds from my retirement IRA to comply with the 70.5 rules.

You misunderstand slightly. You must take a minimum withdrawal for the year you turn 70 1/2. For you that means 2004. For that first withdrawal you can delay until April 1 of the following year; in your case 4/1/2005. However, if you do so you must take both the 2004 and 2005 minimum withdrawals in 2005, which could cause an unnecessary spike in your 2005 income. Taking a distribution in 2003 will not eliminate the need to take one for 2004.

Since most of my retirement fund is now in individual stocks, I intend to gradualy sell off the dogs, pay the taxes, and reinvest the remainder into better dividend paying stocks. All comments regarding this stragety, or a better way to comply with the IRS rules greatly appreciated.

I always recommend selling dogs that you think won't bark again, regardless of the tax implications. The need to take minimum distributions from your IRA doesn't affect that decision.

Unlike contributions, you can take distributions from your IRA in the form of securities. IOW, you can move stock from your IRA to a regular investment account without selling the stock. The amount of the distribution is the value of the stock on the date of transfer. If you don't need the cash this would be a good thing to do with stocks that you think are temporarily down. If you leave them in the IRA, any gain will be taxed as ordinary income when you finally withdraw them or their value. If you use them for your distribution and they then grow in your taxable account, gains will be eligible for the favored long-term capital gains rates (after they've been out of the IRA for a year).

Details about the required distributions are in IRS Publication 590.

Phil Marti
VITA Volunteer
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Unlike contributions, you can take distributions from your IRA in the form of securities. IOW, you can move stock from your IRA to a regular investment account without selling the stock. The amount of the distribution is the value of the stock on the date of transfer. If you don't need the cash this would be a good thing to do with stocks that you think are temporarily down. If you leave them in the IRA, any gain will be taxed as ordinary income when you finally withdraw them or their value.

Hi Phil,

Thanks for your excellent reply. All very good info and I have recommended it. I was not aware that stock could be moved from the IRA to a regular investment account as a distribution, and this appears to be an excellent way to accomplish what I want to do.

Thanks again.
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Unlike contributions, you can take distributions from your IRA in the form of securities. IOW, you can move stock from your IRA to a regular investment account without selling the stock. The amount of the distribution is the value of the stock on the date of transfer. If you don't need the cash this would be a good thing to do with stocks that you think are temporarily down. If you leave them in the IRA, any gain will be taxed as ordinary income when you finally withdraw them or their value. If you use them for your distribution and they then grow in your taxable account, gains will be eligible for the favored long-term capital gains rates (after they've been out of the IRA for a year).
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You can also transfer those stocks from your IRA to a Roth and hope they also grow.
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You can also transfer those stocks from your IRA to a Roth and hope they also grow.

True, but this is a conversion to Roth, not a distribution. The OP was in the context of required minimum distributions. A conversion to Roth does not satisfy the RMD.

Phil
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You can also transfer those stocks from your IRA to a Roth and hope they also grow.

True, but this is a conversion to Roth, not a distribution. The OP was in the context of required minimum distributions. A conversion to Roth does not satisfy the RMD.

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I missed that this was related to an RMD. Also, I didn't realize that a conversion to a Roth doesn't satisfy the RMD. What's the reasoning on that ? I would think as long as you are doing a conversion you will be paying taxes on that distribution so what difference does it make when you reach the magic age of RMD -- 70 1/2 ? The government doesn't want you to continue to tax defer that money ?
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I missed that this was related to an RMD. Also, I didn't realize that a conversion to a Roth doesn't satisfy the RMD. What's the reasoning on that ?

Thanks for my laugh of the day. Imagine someone being clever enough to use "reasoning" in a comment on tax law. I have no idea why Congress wrote the law this way.

Phil
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<I have no idea why Congress wrote the law this way.>


The sad part is that they probably don't either.


BRG
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