22
JAN/FEB 2015
Now is a Good Time to
Check on Your IRA
It’s important to know how to access
the money in your account
by Angela S. Hoover,
Staff Writer
Do you have an
IRA (Individual Retirement Account)
but aren’t sure how to check its
status or maintain it? Do you know
when and how you can access
the money? These answers vary
depending on which type of IRA
you have.
Traditional IRAs
You can make penalty-free
withdrawals, known as qualified
distributions, if you’re 59½ years of
age or older, but you will still owe
the income tax.
If you withdraw money while
under age 59½, there is a 10-percent penalty on the amount withdrawn in addition to the regular
income tax on that amount. There
are certain exceptions where you
can escape the 10-percent penalty:
If you’re withdrawing the money to
pay college expenses for yourself or
your spouse, children or grandchildren; paying medical expenses
greater than 7.5 percent of your
adjusted gross income; paying for
a first-time home purchase (up to
$10,000); or paying for the costs of
a sudden disability.
If you put money into your IRA
but then need it back, you can generally “take back” one contribution
without paying tax, as long as you
do it before the tax filing deadline
of that year and do not deduct
the contribution from your taxes.
You can also withdraw money and
avoid the 10-percent penalty if you
roll the money over into another
qualified retirement account, such
as a Roth IRA, within 60 days.
If you are really desperate for
cash, you can take money out in
substantially equal periodic payments. The IRS will determine
what amount you can receive each
year based on your life expectancy.
Once you start substantially equal
periodic payments, you cannot
stop them until you’re 59½ year
old or five years have passed,
whichever is longer. Should you
stop these withdrawals at any time,
you will be hit with the 10-percent
penalty, applied retroactively from
the time you first began receiving
payments. Therefore, this is not
a very good option if you are less
than 50 years old. It can be equally
risky if you are over 50 years old
because you will be using up your
retirement money.
Roth IRAs
Roth IRAs are more flexible if
you need to withdraw some of the
money early. Generally, you may
withdraw contributions to a Roth
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IRA penalty free at any time for
any reason, as long as you do not
withdraw any earnings on your
investments (as opposed to the
amount you put in) or dollars converted from a traditional IRA before age 59½. In that case, you will
be assessed a 10-percent penalty.
If you’re not sure which money
is considered a contribution and
which is considered earned income, the IRS views withdrawals
from a Roth IRA in the following
order: your contributions, money
converted from traditional IRAs,
then earnings. So if you take out
more than you’ve contributed total,
you are starting to dip into conversion dollars or earnings and will be
penalized and taxed accordingly.
To make qualified distributions,
you must be at least 59½ years old
and it must be at least five years
since you first began contributing. If you converted a traditional
IRA to a Roth IRA, you can’t take
out the money penalty free until
at least five years after the conversion. If you are younger than 59½
years old, there is a penalty for early
withdrawals on earnings from Roth
IRAs.
Checking and
Managing Your IRA
Check your IRA once a year.
Make sure your asset allocation –
the mix of stocks, bonds and cash
– still makes sense for your age and
determine whether you should sell
certain investments and reinvest
them elsewhere. The old rule of
thumb used to be that you should
IRA Continued on Page 31
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