Your retirement plan savings (e.g., qualified plans and IRAs) are important to your
financial well-being for many reasons. You can accumulate income without currently
paying tax, and the power of compounding pretax dollars makes a retirement plan one
of the most powerful investment vehicles available. When you reach retirement age,
your retirement plan assets may be a significant portion of your overall savings.
Therefore, it is important to do everything you can to get the most out of one of the
best investment opportunities you have. Listed below is information to consider when
conducting a review of your retirement plans.
Generally, when you begin to withdraw funds from your retirement plans, you will be
subject to tax on the distributions. If you made after-tax contributions to your
plan, a portion of each distribution will be tax-free. Also, special rules apply to
Roth IRAs that make them particularly beneficial. If distributions begin prematurely
(generally before age 59 1/2), you may be hit with a 10% penalty tax, but exceptions are
When you reach age 70 1/2 (or in some cases, retire), you must start withdrawing a
minimum amount from your traditional IRAs and qualified plans each year. Severe
penalties can result if required minimum distributions are not made on a timely
basis. However, distributions from Roth IRAs are not required during your lifetime.
At the time of your death, the beneficiary designation in effect will determine not
only who gets the retirement plan assets, but also how quickly your account must be
paid out to your beneficiary and, therefore, how quickly the benefits of tax deferral
are lost. Beneficiary designation adjustments may be necessary as family and
beneficiary conditions change (e.g., divorce).
Your retirement plan savings may be critical for you and your dependents' future
well-being. With proper planning, you can maximize tax-deferred earnings, avoid
penalty taxes, choose a desired beneficiary, and minimize the amount your heirs are
required to withdraw (and pay taxes on) after your death.
This publication is distributed with the understanding that the author, publisher and
distributor are not rendering legal, accounting or other professional advice or
opinions on specific facts or matters, and, accordingly, assume no liability
whatsoever in connection with its use. The information contained in this newsletter
was not intended or written to be used and cannot be used for the purpose of (1)
avoiding tax-related penalties prescribed by the Internal Revenue Code or (2)
promoting or marketing any tax-related matter addressed herein. © 2014