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Naming a beneficiary makes it easier for your loved ones to access your account in case of your death. It can also help preserve tax benefits for your heirs and guarantee that your money goes to the right people.
Be sure to review and update your beneficiaries as necessary, especially after a marriage, birth of a child, divorce or the death of a beneficiary. It’s also a good idea to talk to your CPA about the tax implications for those who might inherit your IRA.
If you want to move your IRA investment from one account to another, remember that you have only 60 days to make that rollover once you withdraw money from the original account.
If you don’t make the switch in time, or if you deposit the money into a regular savings or other non-qualified retirement account, the penalties can be steep. Not only will the amount of your withdrawal be included in your taxable income for the year, you will also face a 10 percent penalty if you’re under age 59½.
A Roth IRA may or may not suit your needs, but it’s worth finding out what they have to offer. The income you receive from a Roth IRA is not taxable to you in retirement (or to your beneficiaries if they receive it as part of your estate) and you are not required to take a minimum distribution after age 70½, as you would with a traditional IRA.
Note, however, that, unlike a traditional IRA, your contributions to a Roth IRA are not tax deductible. You can contribute as much as $5,500 to a Roth IRA ($6,500 if you’re 50 or over by the end of the year) as long as your income falls below certain levels.
While it’s a generally bad idea to tap into your IRA too early, you can’t leave the money in a traditional IRA forever. By the time you’re no older than 70½, you must begin to take required minimum distributions each year. If you don’t, you could face a 50 percent tax on the amount not taken as required.
The required minimum distribution varies based on your total account balance and other factors, so consult your CPA if you have questions. Of course, you can also withdraw more than the minimum required distribution, but be sure to portion out your withdrawals appropriately if you need them to last a lifetime.
Retirement planning is important, and you don’t have to do it alone. Your local CPA can offer advice that can help you build and maintain the nest egg you’ll need when you’re ready to retire. Be sure to turn to him or her with all your financial questions.
Copyright 2014 American Institute of Certified Public Accountants.
The Money Management columns are a joint effort of the AICPA and the California Society of CPAs as part of the profession’s nationwide 360 Degrees of Financial Literacy program.
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