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WHERE DO YOU WANT YOUR MONEY TO TAKE YOU TODAY?

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Once IRA distributions have begun, all the earnings and gains that the account(s) have accrued are counted as ordinary income. Your IRA will continue to have its gains accrue tax deferred as long as the account exists and has a value. As for withdrawals, any money taken out of an IRA is subject to tax. There will be a 10- percent early-withdrawal penalty for distributions made to those who are younger than 591/2 years old, with a few exceptions. The IRS typically allows people to take up to $10,000 out of their IRA penalty-free as long as the money will be used for a first-time home purchase or for qualifying education purposes. There is another exception that is discussed in a subsequent section. IRA owners are required to begin taking distributions from their IRAs once they reach 701/2 years old. These are called required mini- mum distributions (RMDs). The IRS has established a formula to determine how much you should take out depending on how old you are.

Nondeductible IRAs Nondeductible IRAs are, in essence, no different than traditional IRAs, except that you can’t take a tax deduction for your contribu- tion. But that’s it; everything else is the same. And there is no differ- ence in the way your account will be handled. You will just not be able to deduct whatever money you put in; all contributions are made on an after-tax basis. Nondeductible IRAs are still limited by the amount of money you may contribute. Just because you can’t deduct what you contribute doesn’t mean that you can put in whatever amount you want. The limits outlined in Table 14.5 reflect those for nondeductible IRAs, as well. The rules regarding distributions and tax treatment are the same as they are for traditional IRAs.

Rollover IRAs Many times when a client has retired, or changed jobs, we take the money out of his or her company’s retirement plan and roll it over into an IRA. While you can roll over retirement plans and pensions into traditional IRAs, the government has established rollover IRAs in order to keep the money separate. Whether or not you utilize a rollover IRA is up to you. However, if you were to set up an SEPP

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