"Nearing Retirement? Consider These "Tax-Smart" Moves"
Submitted by David Taylor, Investment Representaive for Edward Jones

If you’re planning to retire in the next few years, you’ve got a lot of questions to answer. Will your employer-sponsored retirement plan, Social Security and personal savings provide you with a comfortable lifestyle? How much can you afford to take out each year? From what sources? All these issues are important. But one area that might slip beneath your “radar” is taxes - and they can be troublesome if you make the wrong moves.

One potential tax problem can crop up if you need to tap into your retirement savings before you reach age 59 1/2. If you take money out of your IRA or company retirement plan, such as a 401(k), you may have to pay a 10 percent penalty, in addition to regular income taxes, on your withdrawals.

So here are a few “tax-smart” moves you may want to consider in your pre-retirement or retirement years:

• Take regular payments from your traditional IRA - If you must tap your traditional IRA before you’re 59 1/2, you can avoid the 10 percent penalty by taking “substantially equal periodic payments” - as determined by an IRA formula - for at least five years or until you reach 59 1/2, whichever is longer. For example, if you start taking these payments at 50, you must keep taking them until you’re 59 1/2. However, if you don’t start collecting this money until you’re 55, you’ll have to keep making withdrawals until you’re 60.

• Roll over company stock into a traditional IRA - If you leave your job, and you have company stock in your 401(k) or other employer-sponsored retirement plan, you can defer taxes by rolling the stock over into a traditional IRA.
If your company retirement plan contains stock that has grown significantly in value over the years, you could potentially save on taxes through an Internal Revenue Service rule called “net unrealized appreciation” or NUA. These rules apply to certain distributions of company stock from a qualified retirement plan. They can help turn a portion of your retirement-plan distribution, which normally would be taxed as ordinary income, into long-term capital gains, which are usually taxed at lower rates.

• Convert traditional IRA to Roth IRA - When you reach 70 1/2, you’ll need to take “required minimum distributions” (RMDs) from your traditional IRA and your 401(k). If you don’t take these distributions, you’ll be slapped with a penalty of 50 percent of what you should have taken, but didn’t, plus ordinary income tax when you do take the distribution. And if you don’t want to withdraw money from your traditional IRA, you can convert it to a Roth IRA. You’ll have to pay taxes upon the conversion, but, after that, you’ll never face RMDs - and your Roth will grow tax-free for your lifetime, plus that of your spouse’s and subsequent beneficiaries.

Before you act on any of these suggestions, see your tax advisor. In fact, it’s a good idea to get professional advice well before you think you’ll need to make any moves. By planning ahead, you can make your pre-retirement and retirement years far less “taxing”.

MAGGIE.S MEMO:
DAVID TAYLOR, Investment Representative with Edward Jones, is located at 1411 Wesley Drive in Salisbury.

Edward Jones was established in 1871 and has built their business working one on one with individuals as they pursue their personal financial goals.

MAGGIE SAYS:
DAVID TAYLOR takes time to educate his clients, as much as they need. He is very particular and closely monitors each client’s investments. We have worked with David and have talked with other clients, all of whom expressed their complete confidence in him and their pleasure in the growth and income they are experiencing, even in these very tough economic times. David deals with the highest quality investments. Call him at 410-742-3264 and see what he can do for your portfolio.