{ 8 comments… read them below or add one }

Evan February 15, 2010 at 12:21 pm

The only thing I would remind people is that their 401(k)/457/403(b) can be tapped through loans, which MAY be a better option than taking out and paying taxes (regardless of whether we met one of the above exceptions).

Jason @ Redeming Riches February 15, 2010 at 12:43 pm

Good point Evan. One word of caution on that would be that if you lose your job and have a 401k loan, it is considered to be a distribution and taxes (and penalties if under 59 1/2) are due.

Just something to keep in mind especially in this volatile job market we are in.

Darren February 15, 2010 at 2:05 pm

Nice, comprehensive post.

I’d just like to add some more detail to the point about taking the RMD at the age of 70 1/2. Although the owner must begin taking it, the first RMD payment can be delayed until April 1st of the following year. So if you turn 70 1/2 today, February 15, 2010, you can actually delay your first RMD until April 1, 2011.

Hope that helps a bit.

Ken February 15, 2010 at 2:36 pm

Great post about an oftentimes confusing topic. Great Job.

Jason @ Redeming Riches February 15, 2010 at 4:42 pm

Darren, thanks for the additional detail there. That can come in handy if you expect income to be much lower the following year. Just remember that you have to take 2 out that following year (one for the previous year and one for the current year).

Darren February 16, 2010 at 10:45 am

Yep, you’re right Jason. So following my example above, the retiree would have to take their RMD for 2011 in the same year, by December 31, 2011.

Ahh… the intricacies of retirement planning!

Steve June 19, 2010 at 3:47 am

Jason,
Will this work as a way access funds from a Trad. IRA for someone under 59.5:

transfer 30K from trad. IRA to a Roth, and designate 20K of these funds to go toward the taxes. Therefore the 30K would be considered income; 10K of which would go into the Roth, and much of the 20K paid as taxes would be re-imbursed as an “over-payment of taxes” for that fiscal year.

Jason @ Redeeming Riches June 21, 2010 at 10:31 am

Steve, It might work in the sense that you could do it – but I’m not sure why you’d want to. You don’t really want to pay taxes on a conversion with the IRA money – you want to have separate money to pay the taxes. You’d be killing a $30k IRA and making it $10k Roth and being taxed on the full $30k. Uncle Sam would absolutely love you!

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