Ira Info

The SIMPLE Way to Save For Retirement

The SIMPLE Way to Save For Retirement

by: Ken Morris

A relative newcomer to the retirement plan market, the SIMPLE IRA can be a cost-effective retirement planning alternative for small employers and their employees.

A SIMPLE IRA plan consists of a deferral program for eligible employees, along with mandatory contributions by employers. An eligible employer is defined as an employer who has no more than 100 employees that received at least $5,000 in compensation from the employer in the preceding calendar year. An employer maintaining a SIMPLE plan may not maintain any other qualified retirement plan in which employees currently receive benefits.

What makes the SIMPLE IRA so attractive to business owners is their ability to defer the maximum ($10,000 for 2006) without regard to employee participation. There is no ADP test, which limits how much an employer may defer based on average deferrals of non-highly compensated employees. Also, there is no top heavy testing which in other plans requires contributions to all eligible employees when the plan is deemed top heavy.

Employees are eligible to make deferrals if they receive at least $5,000 in compensation from their employer during any two preceding years and they are reasonably expected to receive at least $5,000 in compensation for the current year. Participants can defer up to $10,000 for 2006 with no set maximum percentage of compensation and elect to defer a specified percentage of compensation as opposed to a dollar amount. In addition, for tax year 2006, individuals born prior to 1955 will be allowed to contribute an additional $2,500.

There is a trade off for allowing flexible deferrals. The employer is required to make a fully vested contribution by either:

? Matching elective deferrals dollar-for-dollar up to three percent or

? Contributing two-percent of compensation to all eligible employees, regardless of elective salary deferral (limited to the current compensation cap for the year - $220,000 for 2006).

Employees are allowed to terminate deferrals at any time during the year and depending on the plan provisions, may or may not be able to re-initiate deferrals again that same year.

Be mindful that participants who take withdrawals from a SIMPLE IRA prior to age 59? are generally subject to the same 10% early withdrawal penalty applicable to IRAs. However, participants who withdraw SIMPLE IRA contributions during the two-year period beginning with their initial participation date will be assessed a 25% penalty tax.

A SIMPLE IRA plan distribution may be rolled over to a regular IRA account, but only after the employee has participated in the SIMPLE IRA for at least two years. Keep in mind neither IRA assets nor any other retirement plan assets may ever be rolled into a SIMPLE IRA.

This article is meant to provide an overview of the basic provisions of the SIMPLE IRA plan. For a more complete understanding of this plan and opportunities for your business, speak with your Financial Advisor

About The Author

Ken Morris

Fearing the American worker is being left in the dark, Mr. Morris, a fee based Investment Advisor Representative with Raymond James Financial Services, Inc., helps 401k participants get the most out of their retirement plan.

raymondjames.com

lindsay.brickner@raymondjames.com

Substantially Equal Payments Relief

Substantially Equal Payments Relief

by: Ken Morris

If you initiated early distributions from your Individual Retirement Account (IRA) in the last couple of years using a Substantially Equal Payment plan, your annual distribution amount may be more than your current account balance can bear. You may think there is nothing you can do to alter your distribution amount and slow down the depletion of your IRA account. This is not true. The IRS now permits you to make a one-time, permanent reduction to your annual distribution amount.

The primary purpose of an IRA is to accumulate assets for retirement. Therefore, distributions taken before age 59 ? are subject to a 10% premature distribution penalty, unless an exception applies. One such exception is a Substantially Equal Payment plan, which as you know is subject to several requirements. For example, your may not stop or otherwise modify your distributions until the longer of five years or until you reach age 59 ?.

Under your Substantially Equal Payment plan, your distribution amount was probably calculated using one of three IRS approved methods: annuity, amortization or life expectancy. The annuity and amortization methods are used more often because they produce the large distribution amounts that are easily matched to income needs.

Both the amortization and annuity methods have a fixed annual distribution amount. It is calculated once - at the beginning of your payment stream ? and the annual distribution amount may not be modified. This is what distinguishes the amortization and annuity methods from the life expectancy method. If you are using one of these methods and your account balance experiences a significant decline, you may be running a substantial risk of depleting your entire account.

The annual distribution amount for the life expectancy method is recalculated annually based on your current age and account balance. If you have experienced a significant decline in your account balance because of the current economic conditions, your annual distribution amount will be automatically adjusted downward. This flexibility ensures that distributions continue at a rate your current account balance is capable of sustaining.

If you are currently using the annuity or amortization method, the IRS now permits you to make a one-time, permanent switch to the life expectancy method so that you may reduce your annual distribution amount. For example, assume you were a 54-year-old individual taking distributions under the annuity method of $49,460 each year. If you elect make the switch, your distribution amount for the current year would be reduced to $14,234. This is a significant reduction.

In evaluating whether to make this switch, you must consider many issues. For example, you must weigh the effect of continuing your current distribution stream against taking a reduced annual distribution amount. You must also consider the timing of the switch. Not everyone will be able to make the switch for the 2005 tax year. Before you make the one-time, permanent switch, please discuss these and other relevant issues with your financial advisor or tax professional.

About The Author

Ken Morris

raymondjames.com

lindsay.brickner@raymondjames.com

Concerned About Your Pension?

Concerned About Your Pension?

by: Ken Morris

In the wake of poor market performance over the past few years, a number of traditional pension plans sponsored by private employers do not have sufficient assets to provide the promised benefits. These plans are underfunded.

In general, if your plan is a traditional pension plan, it promises to pay you a specified monthly benefit in retirement. Your plan may specify a flat dollar amount, such as $100 a month. Or, more commonly, it may specify a benefit formula, which takes into consideration other factors such as your age and your length of service. For example, your plan may provide for a benefit equal to 10% of your average salary, based on your three highest wage earnings years with your employer, for every year of service with your employer.

With a traditional pension plan, your employer is responsible for making all contributions to the plan. Each year, your employer must hire an actuary to calculate, based on interest rate and other assumptions, the amount that must be deposited into the plan so that the plan will be able to provide the promised retirement benefit.

So, how will you know if your pension plan is underfunded? If you want to check the status of your pension plan, simply ask your Plan Administrator to tell you what your plan?s funded percentage is. In fact, you may want to inquire even if you are not concerned about your plan.

What happens if your plan is underfunded? Don?t panic. Even if your plan is underfunded, it may not be in trouble. Many pension plans become underfunded for one reason or another. It doesn?t necessarily mean your employer will not be able to cure the plan. Most plans recover quite nicely within a couple years. And, for those plans that continue to have trouble, help may be available from the Pension Benefit Guarantee Corporation (the ?PBGC?).

The PBGC is a federal agency that protects and insures pension benefits in private sector pension plans. When a plan has insufficient assets to pay all promised benefits and the employer is not able to cure the plan, the PBGC will step in to pay the promised benefit, up to certain limits set by law. When this happens, it is likely that some employees will not receive the entire benefit promised under the plan. The Summary Plan Description, provided by your Plan Administrator, will tell you if your plan is covered by the PBGC.

What should you do if you find your plan is in trouble? Unfortunately, your options are limited with regard to the plan. However, you are able to reexamine how you save for retirement. For example, you may need to add a column or two of additional support by increasing your salary deferral contributions to your 401(k), if any, and your IRA or annuity.

It is always wise to stay informed, especially about one of the resources supporting your retirement plan. Your inquiry may uncover a need to modify how you save for retirement by adding another ?column of support.?

One of the most important steps you can take now is to become informed: informed about your pension plan and informed about other options. You will want to consult with your Financial Advisor as a part of your information gathering process and to review any additional proactive steps you may want to take.

About The Author

Ken Morris

?Can somebody please help me watch, manage, invest or oversee my 401k? is the question Mr. Morris hears most often that causes him the most concern. Fearing the American worker is being left in the dark, Mr. Morris, a fee based Investment Advisor Representative, based in Central Ohio, with Raymond James Financial Services, Inc., helps 401k participants get the most out of their retirement plan.

raymondjames.com

lindsay.brickner@raymondjames.com

The End Of A Dream, What Economic Factors Are Stimulating Self Directed Investment Market?

The End Of A Dream, What Economic Factors Are Stimulating Self Directed Investment Market?

by: Joshua Geary

The 40 Year Plan is Over

What is truly driving the market of self directed retirement investing? Is it the buff real estate market? Or are there other economic factors?

Unbeknownst to 98% of working people, the 40 year plan is over. Statistics show that by age 65 less than 2% of Americans can truly retire in comfort without the help of family members or the government. The lackluster performance of the stock market over the past 6 years has dashed many people's hopes of retiring early. It used to be that you could get a great education, get a great job and settle with a company by 25 years of age, keep your nose clean, work your way to the top, invest in your companies stock and by age 65 retire the company you sacrificed for will take care of your retirement and medical expenses for life.

For many now this is just wishful thinking and a pipe dream.

Today's norms:

The harsh reality is: Corporate down-sizing (e.g. Gillette, Ford, and GM). Corporate bankruptcies - Enron, Worldcom). Company's robbing company pension plans and judges are allowing it to happen just ask people working for the airlines, illegal insider stock trading, age discrimination, companies cannot afford to pay health insurance premiums because they have sky-rocketed and people are living longer.

Other forces: World Instability, unfettered nuclear proliferation, Sept 11th, natural disasters all cooked together.

Yes, the poor performance of the stock market, lower interest rates and the real estate boom have contributed greatly to people looking for alternative investment strategies such as self directed investing of retirement funds in real estate.

The Internet, information proliferation, people's ability to share information, online financial software, and real time stock quotes.

Benefits of investing with self directed ira funds:

? Stimulates the economy? It is great for recession proofing an economy. Money from retirement funds keep construction crews working

? With the ability to look outside the stock market, you may find alternative investment vehicles that are safer with higher returns which will allow you to make up for lost time.

? The government and taxpayers do not have to pick up the tab in order to help someone maintain their lifestyle during retirement.

? Permits true retirement diversification and wealth accumulation in tangible assets.

? Global investing? With your self directed IRA, you can invest in international real estate.

Granted self directing your retirement portfolio is not for everyone. But what are your legitimate alternatives?

About The Author

Joshua Geary is an avid writer, business strategist and online marketing consultant. For more information on how you can get checkbook control of your IRA and turn your self directed IRA into a wealth magnet visit http://www.MyRealEstateIRA.com.

Hidden Tax Opportunity For Tax-Deferred Investments

Hidden Tax Opportunity For Tax-Deferred Investments

by: Ken Morris

As IRA and other retirement plan account balances continue to grow larger, often into very significant amounts, the need to understand tax characteristics becomes more critical.

These types of accounts offer the tremendous benefit of tax deferral, as everyone is well aware, but a ?taxing? problem may remain upon the death of the participant. This quandary is known as income in respect of a decedent. Income in respect of a decedent is income to which the decedent was entitled, but due to his or her death was not includable in his or her taxable income. In other words, IRD assets do not receive a step-up in cost basis at death like capital assets. Therefore, they are taxable to the estate or the heir who receives them.

Another unique characteristic of IRD assets is potential dual taxation. They are included in the gross estate of the decedent, so they are subject to estate taxes. Further, the IRD asset, when distributed, is subject to income tax upon receipt. If a beneficiary receives the IRD, it is included in his or her ordinary income for that tax year and he or she is taxed on it. However, there is a hidden tax opportunity just waiting to be utilized: a 691(c) deduction.

691(c ) is an income tax deduction designed to offset the double whammy on inherited assets that incur both federal estate and income taxes.

But income tax forms don?t flag this important tax break, popular tax-preparation software barely mentions it, and many accountants and attorneys are unaware of its importance. This deduction is likely to be most useful for people who have inherited IRAs or other such retirement plans. But the deduction also applies to things such as lottery winnings and interest on unredeemed U.S. savings bonds.

A growing number of individuals who qualify for this deduction are throwing it away every year because they have no idea it even exists.

To determine if the deduction can be claimed, it is necessary to examine the decedent?s federal estate tax return. If there is no federal estate tax, then the income tax deduction is not allowed because double taxation has not occurred. But if there is a federal estate tax, an income tax deduction is permitted based upon the estate tax directly attributable to the net value of the IRD.

The deduction can be claimed as distributions from the IRD asset becomes subject to income tax. Therefore, it is important for beneficiaries to keep track of how much of the deduction they have used.

To claim the deduction, individuals must itemize. Unlike other miscellaneous itemized deductions, which can be written off only to the extent they exceed 2% of an individual?s adjusted gross income, the deduction for income in respect of a decedent can be claimed in full. Individuals who missed the IRD deduction when they first inherited the asset may have an opportunity to amend their returns.

Of course, this brief article is no substitute for a careful review of your unique personal circumstances. Before implementing any significant income tax strategy, please contact a tax professional and Financial Advisor.

About The Author

Ken Morris

raymondjames.com

lindsay.brickner@raymondjames.com

Changing Jobs? Don?t let your 401(k) slip away.

Changing Jobs? Don?t let your 401(k) slip away.

by: Ken Morris

Changing Jobs? Don?t let your 401(k) slip away.

Today?s job market is more transitory than ever. And, as more and more individuals switch jobs, they begin to wonder what they should do with the money they have accumulated in their employer-sponsored retirement plans such as their 401(k) plans. The good news for 401(k) plan participants is that your retirement plan assets are very portable so you may be able to keep your existing 401(k) plan assets in a tax-deferred environment.

The trick is to resist the urge to use the monies. After tucking money away in your 401(k) for quite some time, you may be tempted to use it to treat yourself to a new car or some other indulgence. Because it could literally take years to replace your existing 401(k) funds, you should think carefully before prematurely taking money from your retirement savings.

A hasty withdrawal decision by someone under age 55 could easily wipe out a third of your 401(k) assets. If you decide you want a lump-sum withdrawal paid directly to you, the 401(k) plan trustee must withhold 20% for federal income tax and, if you do not attain age 55 prior to the end of the year in which you separate from service, the trustee must also withhold an additional 10% premature distribution penalty. So you will receive a net payout of 70 to 80% of your existing 401(k) plan account balance. After age 55, however, the premature distribution penalty is no longer imposed if your withdrawal is prompted by your separation from service with the employer sponsoring the plan.

Of course, if you choose to take a withdrawal, you may, within 60 days of the distribution, subsequently decide to deposit it into an IRA as a qualified rollover. However, for the withdrawal and re-contribution to be a tax neutral event, you would need to deposit the gross distribution amount into the IRA, which means you need to replace the withheld monies with funds from another resource such as your personal savings.

If you can resist the urge to take a withdrawal when you change jobs, you are one step closer to making a distribution decision that will preserve your hard-earned money. To be in the best position to make an informed decision, you should consider other options available for your existing 401(k) assets, such as:

? leave your assets in the 401(k) plan,

? transfer your assets to a new employer?s 401(k) or retirement plan, or

? roll your assets into an IRA.

Leaving your assets in the 401(k) plan may not be your best option. It depends on your existing 401(k) plan?s provisions. Some plans have limited investment options for employees who have separated from service and some have restrictive distribution options. However, most plans do allow employees who separate from service to roll their 401(k) assets to a new employer?s 401(k) plan, or retirement plan, or to roll to an IRA.

Transferring your existing 401(k) assets to a new employer?s plan may be an option. To do so, you must first meet the eligibility requirements of your new employer?s plan. Additionally, the trustee on the new plan must agree to accept your assets, which may be a concern, especially if your existing 401(k) assets include shares of employer stock. Information on other considerations involved in transferring your existing 401(k) assets to your new employer?s 401(k) plan is available from your new employer.

A direct transfer to an IRA avoids the mandatory withholding of the 20% for income tax and the 10% for the premature distribution penalty, if applicable. Your 401(k) plan trustee may simply transfer your plan assets electronically or may cut a check payable to your IRA. Once in your IRA, the assets continue to accumulate tax-deferred. One of the more attractive aspects to rolling your existing 401(k) into an IRA is your control feature. Not only do you have more control over your investment options; but, you will also have more control over the timing and manner of your distributions.

Your 401(k) plan account balance represents your savings; therefore, it is important to make informed distribution decisions that will preserve your hard-earned money. To learn more about the portability of your 401(k) assets, or for more information on preserving your 401(k) assets and 401(k) retirement planning strategies based on your particular situation, please contact a Financial Advisor for a complimentary consultation.

About The Author

Ken Morris

raymondjames.com

lindsay.brickner@raymondjames.com

Don?t Knock Taking Your Employer Stock

Don?t Knock Taking Your Employer Stock

by: Ken Morris

Don?t Knock Taking Your Employer Stock

Given the growth of employee-employer savings to meet retirement goals, it is not uncommon for employees to have a significant amount of employer stock in their qualified retirement plans. When it comes time for employees to leave the nest, most are willing to directly rollover all qualified plan assets into a traditional IRA. A traditional IRA rollover offers avoidance of an immediate income tax consequence, the retiree remains in control of his/her retirement assets and the benefits of tax deferral can continue.

However, there may be another option available that should be considered, a type of combination approach. This option involves distributing employer stock to the retiree and directly rolling over the remaining balance of the plan assets into a traditional IRA. This combination approach, though not for everyone, may have significant advantages.

By not including the employer stock in the traditional IRA rollover, the retiree is exposed to income taxes immediately. This is because he/she is receiving the shares as a taxable distribution. However, the taxes due will be only on the cost basis of the stock. Therefore, it?s important to know what the actual cost basis of your employer shares are in your retirement plan. The cost basis is essentially what the plan Trustee paid for the stock. Exposing the stock to taxes now may be more advantageous in the long run because, in most cases, this cost basis of the employer stock will be much lower compared to the current market value.

The stock held outside the traditional IRA will continue to defer taxes on any appreciation. When the retiree ultimately decides to sell the shares, he/she will pay long-term capital gain rates - currently capped at 15% - rather than at ordinary income tax rates, which could run 35% or more. In addition, there are no minimum distribution requirements starting at age 70 1/2 or other nasty penalty taxes for this block of employer stock, allowing for more planning flexibility.

And lastly, the retiree?s heirs may miss out on another big tax break. If these same shares of employer stock were rolled into a traditional IRA, the heirs would ultimately owe ordinary income taxes on the employer stock, as they would on any asset held in a traditional IRA. This could result in a sizable income tax bill due at death, taxed at a potential 35%. By rolling into a traditional IRA, the heirs are unable to utilize the benefits of long-term capital gains treatment when they decide to sell the stock and may lose a tax saving opportunity.

There are many technical requirements that must be met in order for this type of distribution to qualify as what?s known as a lump sum distribution. Of course, diversification considerations and other investment fundamentals may show that rolling over stock to a traditional IRA may be the most prudent choice in many cases. Therefore, it is highly recommended that retirees considering such a maneuver obtain professional advice. Be sure to check with your financial planner or financial advisor whether you can reap the full benefits of holding on to your employer stock.

About The Author

Ken Morris

raymondjames.com

Take Advantage of Higher IRA "Catch-up" Limits

Take Advantage of Higher IRA "Catch-up" Limits

by: John Bradford

If you fall into the Baby Boomer generation, having been born between 1946 and 1964, this 3rd stage of life, retirement, is right in front of you. Keep in mind, that potentially, this is the longest stage of life, possibly lasting 20-30 years. Dont' fail to prepare for this very important transition into your retirement years.

The prospect of actually becoming a retiree looms larger as the years go by. Fortunately, it's just become a little easier to build savings for your retirement years. Why? Because, starting Jan. 1, you can put in $1,000 in "catch-up" contributions to your traditional or Roth IRA, up from $500 in 2005. So, given the $4,000 annual limit for regular contributions, you can put in a total of $5,000 to your IRA in 2006.

Fully funding your IRA should be one of your top investment priorities. Keep in mind that IRAs offer two major benefits:

Tax advantages - If you have a traditional IRA, your earnings have the potential to grow tax-deferred, so your money can grow faster than it would in an investment on which you paid taxes every year. (You will eventually have to pay taxes on your earnings, but, by then, you may be in a lower tax bracket.) Also, depending on your income level, your contributions may be tax-deductible. When you have a Roth IRA, you can withdraw your contributions at any time, free of taxes. You can also take out earnings, free of taxes, as long as you don't begin withdrawals until you are 59-1/2 and you've had your account for at least five years.

Variety of investment options - You can invest your IRA in virtually any security you choose - stocks, bonds, Treasury bills, certificates of deposit, etc. In fact, you're not confined to just one type of investment within your IRA; you can create a diversified portfolio containing a variety of holdings.

Given these tax advantages and this investment flexibility, it's almost certainly a good idea to "max out" on your IRA every single year. Of course, it's not always that easy to come up with $5,000 at one time, but you don't have to. You can fund your IRA over the course of a year by putting in about $416 per month. And, to make it even easier for you to completely fund your IRA, you could have that $416 moved automatically, via a bank authorization, from your checking or savings account to your IRA.

But however you do it - over 12 months or right away - put the full amount into your IRA. Along with your 401(k) or other employer-sponsored retirement plan, your IRA is one of the best retirement-savings vehicles you have available. And now that you are on the "plus" side of 50, you'll want to really focus your efforts on making sure you have the resources available to enjoy the retirement lifestyle you deserve.

About The Author

John Bradford is an investment professional and webmaster. Find more retirement planning http://www.mygreatretirement.com.

You are free to republish this article as long as the resource box stay intact.

How Many Years Do You Have Left Until You're 65?

How Many Years Do You Have Left Until You're 65?

by: Drew Miles

Reality Check - How many years do you have left until you're 65?

Whether retirement is just around the corner or have many more years to go, setting yourself up for retirement is key and must start now. Do the math. If you want $10,000 and you?re investing at 5 percent, you need $3,765. If you invest at 10 percent, you?ll need $1,400. It?s great if you have a savings account (you?re ahead of most folks), but if that?s the highest form of investing you?re doing?we have a lot of work to do.

It?s not Magic?Compounded Interest

In my 30s, I started saving $50 each month. As I earned more, I saved more. If you invest in a Roth/IRA, your money grows tax-free.

Example: If you invest $1 for 40 years at?

1 percent = $1.49

10 percent = $45.26

20 percent = $1,470

Make your money work for you.

Get a plan down for saving and stick to it. I was trained in trading commodities. To do so, you have to eliminate/minimize your emotion. You go in with a plan and stick with the plan, meaning you invest only under certain circumstances and if it goes down more than a certain amount, you take your loss and drop out. If your trading system loses 80 percent of the time, is this a good system? Perhaps. If you only lose $0.01 (when you lose), and you make $0.05 when you win?this is a good trading system because the winnings outweigh the losses. You can make 20 percent on some investments that are 100 percent secured (by the United States government, such as tax deeds).

About The Author

Drew Miles

B.S. with Honors Hofstra University Long Island, New York, 1984.

I finished my four-year undergraduate program in 3 years and graduated Cum laude as well as a member of Phi Beta Kappa Fraternity. I majored in Political Science with a minor in Sociology and completed my first legal internship.

Hofstra University School of Law, Long Island, New York, 1987.

During my three years of law school, I completed an internship with a New York Supreme Court Justice and second legal internship with a law firm and also began investing in real estate.

Business: Immediately upon graduating law school and passing the bar exam, I opened my own law practice. From 1988 to 2001, I practiced with my partner under the name Miles and Gillard, where I concentrated in the area of real estate and business law. During that time, I had the privilege of working with thousands of clients in various aspects of their business and investing life.

Find Out More: http://www.irabusinesssystem.com/

drewmiles@pfbs.com

Benefiting Substantially From Your IRA Early

Benefiting Substantially From Your IRA Early

by: Ken Morris

If you own an Individual Retirement Account (IRA), the primary purpose is to accumulate assets to provide an income source during retirement. In the accumulation phase, you may contribute to an IRA on a tax deductible basis (with some exceptions) with the earnings growing tax deferred. Upon withdrawal, distributions will be included in income and taxed accordingly. In addition, for those wishing to access their IRAs ?early,? distributions prior to age 59 ? will be subject to a 10% premature distribution penalty tax, unless an exception applies.

You may have thought that there is no way to withdraw funds from your IRA ?early?, before age 59 ?, and avoid the 10% penalty. This is not true. The IRS permits an individual, under the age to 59 ?, to make distributions from their IRA and avoid the 10% early withdrawal penalty if the distributions are due to one of the IRS exceptions, one of which is a series of substantially equal periodic payments. As you may have guessed, there are several requirements that apply when claiming the substantially equal payment exception.

For example, once distributions are deemed to have begun from the IRA under the substantially equal payment exception, the payments must continue at least annually, unmodified, for the longer of five years or until the IRA participant reaches age 59 ?. In other words, if a 50 year old IRA participant begins distributions under this exception, distributions must continue until the individual attains age 59 ? before the amount could be modified. On the other hand, if a 58 year old IRA participant begins distributions under this exception, distributions must continue until the individual attains age 62 before the amount could be modified.

The amount that can be withdrawn each year is calculated by using one of three IRS approved methods: annuity, amortization and life expectancy. The variables included in the calculation are the individual?s age, the IRA account value and a ?reasonable? interest rate. Each method will allow a different amount to be withdrawn from your IRA and most individuals simply choose the method allowing for the distribution amount closest to what they need. Generally, a tax or financial advisor with the use of software can perform these calculations for you.

The substantially equal payment exception does allow for you to access your IRA ?early? but is it the best alternative? It is important to note that if the payment amount is modified before the later of five years or attainment of age 59 ?, a 10% penalty will be applied retroactively to all current and previous distributions intended to qualify under the substantially equal payment exception. Before electing substantially equal payments from the IRA, ask yourself, will I be able to maintain the amount withdrawn for the necessary time period? Consider the use of this method in difficult financial times. If you have been temporarily unemployed, the amount of the payment may not be sufficient to sustain your lifestyle during a prolonged work stoppage. Individuals applying this strategy have been known to dip back into the IRA for more money, thus modifying the payment schedule and subjecting all distributions to the retroactive 10% penalty.

This article illustrates just a few of the many issues to consider before beginning a series of substantially equal payments from your IRA. These issues and alternative solutions should be carefully examined with your financial advisor or tax professional before making any decisions.

About The Author

Ken Morris

raymondjames.com

lindsay.brickner@raymondjames.com