Posts Tagged ‘individual retirement account’
IRA Rules for Making Withdrawals
Contributing to IRA or Individual Retirement Account does not only secure you financially when you retire but it also frees you from tax burdens. Before doing so, you need to review IRA rules and be acquainted with them so you will be guided on how much amount you would like to invest, when is the right time to withdraw the investment and to have an overview of your financial status when you retirement comes.
IRA basics and contributions have indeed rewarded you with tax deductions from the contributions, the return of investments of regular IRA is tax deferred and all withdrawals are subject to income tax, whether you use it for investment property or mutual funds. However, this is with exemption to the recovery of the previous non-deductible distributions like those contributors who have also availed employer-sponsored retirement plans. You need to be reminded too that every IRA withdrawals means jeopardizing the important benefits from previous IRA contributions. You may also lose all the potential investment growth of your retirement plan.
There are circumstances which may lead you to early withdrawal of your contributions. The IRA rules requires you to reach 59 ½ years old for you to withdraw the investment and withdrawals made prior to that would incur you a penalty. Such penalty only exempts withdrawals that are made because you:
- die and the account is paid to your beneficiary
- become disabled
- incur hospitalization expenses which is more than 7.5% of your adjusted gross income
- start a substantially equal periodic payments
- need to pay higher education expenses of the family
- withdraw and the money will be used for a qualified “first-home” purchase (up to $10,000)
- withdraw based on the qualified domestic relations order (QDRO)
The IRA rules also give you the option to delay receiving distributions from your IRA plan but you need to withdraw annually at least your Required Minimum Distribution (RMD). Otherwise, you will suffer for the penalty of not withdrawing your RMD which is 50% of what should have been distributed minus the amount that needs to be withdrawn. The RMD is calculated as your account balance as of the beginning of the year in question divided by your life expectancy as determined by the IRS in its Uniform Life Expectancy Table. This applies unless your sole beneficiary is your spouse and your spouse is more than ten years younger than you.
What To Do With Your Money When You Retire
The inevitable truth is none of us are getting any younger and so you need to prepare for your golden years whether you like it or not. Most of us are busy working, raising families, partying, studying and enjoying life and so planning for 30 to 50 years from now may not be the first thing we think about. However it is something you should be doing at a very young age because it is much harder to plan and save as you get older.
One of the best ways to save for your retirement is by investing in your company’s 401k plan. A 401k plan was formulated by our government to help Americans prepare for their retirement years. The plan allows you the opportunity to invest your money, tax deferred and using compound interest, so by the time you reach retirement you have a nice chunk of money available to you so you can still thrive. However, not everyone will stay with the same employer forever and so the nice thing about the 401k plan is that you can rollover to a new plan should you find a new employer, or you can transfer it to an individual retirement account.
Once you are ready for retirement you then need to consider what options you have with all of that money. This is your retirement after all and so you want to make sure that your money is working for you in the best way possible. (A lot of folks now are moving from volatile stocks to steady investment property.) It is the key to you having a comfortable and happy retirement life. You have a few options to choose from:
You can invest your income into an annuity. Essentially you choose a company to handle your money. You give them a lump sum and they will give you a certain amount of your money each month. Kind of like getting a paycheck from an employer. There are a few things to consider with this option though. If you do not live to see the last dime of this money, whatever money is left over the company does not have to give this to your family members. However, should you live longer than expected this company will have to continue paying you so essentially you may end up with more money than you gave them. It is a gamble.
Another option to invest your money and put it to work during retirement is by buying property. This is something that needs to be well thought out because should you buy a piece of property that does not increase in value you could certainly lose money on it. You can always flip houses or find renters that will pay more than what your mortgage is worth. You should talk to a Realtor as well as a financial advisor to get an understanding of the current market.
Whatever you choose it is important to research your options. You can invest in a variety of different ways to make you retirement money work for you, but you don’t want to take action haphazardly Educate yourself and make smart decisions.