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WHERE DO YOU WANT YOUR MONEY TO TAKE YOU TODAY?

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As for regular withdrawals, the same rules apply as for the tradi- tional IRAs. Besides the five-year rule, the only other exception is the required minimum distribution rule. Because the money that goes into a Roth IRA is after tax, and since the money that is with- drawn from a Roth is tax free, the IRS imposes no rule as to when the money must come out of the account. So you don’t have to make any withdrawals from a Roth IRA until you are 90 if you want!

Converting to a Roth IRA Many clients ask me about converting their traditional or rollover IRAs to Roth IRAs. They think that by converting, they will be able to take their money out of their existing IRAs tax free. However, it doesn’t work like that. To convert a traditional or rollover IRA to a Roth IRA, you will need to pay the taxes due, just as if you had taken the entire amount out of the IRA. (SEP and SIMPLE IRAs may also be converted after two years.) Plus, if your AGI is more than $100,000, you are ineligible to convert. (Tax payers who file as mar- ried but filing separately are always ineligible to convert.) You don’t think that the IRS will let you just convert and not pay any taxes, do you? If you think that you will benefit from the tax-free distributions, and you have the cash on hand to pay the taxes due, then converting may be a good idea. But, for most people, converting their traditional and rollover IRAs to Roth IRAs is just a poor idea, especially if you find that you have a substantial amount of money invested in IRAs.

Substantially Equal Periodic Payments I mentioned before that there was an additional way to take distribu- tions from your IRA prior to turning 591/2 without paying the 10-per- cent early-withdrawal penalty. The program called Substantially Equal Periodic Payments, or SEPP (not to be confused with SEP plans), will help you achieve this. The SEPP program is generally used by those individuals who have retire and have no source of income, but their retirement funds and are younger than 591/2. Because the person has retired, he or she is not earning any income. That person will also be too young to take money out of his or her retirement accounts without penalty, or to draw social security. But, he or she has to have some sort of income, right?

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