Last year I reached a milestone age: 59½, old enough to withdraw money from my individual retirement accounts with no penalty. While this felt bittersweet, it did remind me of the importance of timing when it comes to taking money out of retirement accounts. Withdrawing at the wrong time can create serious tax consequences.
Withdrawals from 401Ks
We all often hear about how dire the retirement outlook for Americans is. While the overall situation is scary, I like to focus on the benchmarks that everyone can target without feeling like they’re losing before even starting.
Though I recognize that the alternative is much worse, getting older is for the birds. I hate the word “senior.” I do enjoy senior discounts but can gladly renounce them for just a small amount of real respect – and that includes in financial matters.
How much can you spend in your retirement? Answering this pivotal question requires you look hard at your current spending and how long you can expect to live – and at new approaches to using both factors in your plan.
An important part of your annual update of your retirement plan is new facts and circumstances. The problem: You may overlook important variables even as basic as the right retirement age.
For most folks, when you reach 70½, you must start taking money from your retirement accounts every year. A little flexibility exists in the first year for you to plan withdrawals to your tax advantage.
The first step of successful investing is setting goals. Right goals. Having a long-term stable income for retirement is a right goal. Accumulating $1 million is not.
Saving for retirement is one thing, spending those savings wisely another. One school of thought says you must withdraw consistently from your savings to simply avoid exhausting cash before you die. Another believes in adjusting withdrawals depending on changes in your later years. Which is right for you?
When you put earned income into a tax-deferred account such as an individual retirement account or a 401(k), Uncle Sam eventually wants those taxes. The Internal Revenue Service requires you to take required minimum distribution (RMD) withdrawals. You must know when and how much to take, though, or you face hefty penalties.
Here are the top five mistakes people make with RMDs and how to avoid them:
Are you a retiree with most of your retirement investments in stocks? Good idea? No: Even as the markets near or notch records every day, stay conscious of risks of not diversifying between classes of assets.
A recent Wall Street Journal article discussed how retirement savers are putting more money into stocks. Two excerpts:
Are you within a few years of retirement? Time right now to get your financial house in order and here’s what to include on your pre-retirement financial checklist.
401(k)s. You need to determine if you want to leave the plan and its assets with your soon-to-be-former employer, roll assets into an individual retirement account or take a distribution (the last choice likely results in a hefty tax bill).