Five Myths About Retirement Plans

Send this article to a friend.

Printer friendly version.

Five Myths About Retirement Plans

Once you hit age 701/2, retirement plan minimum withdrawal rules kick in. If you take less than the minimum, there’s a 50% penalty tax on the difference between the minimum and the amount (if any) you actually withdrew for the year. Paying the 50% penalty doesn’t get you off the hook. When you do withdraw the money you were supposed to, you’ll still owe the regular tax on that withdrawal.

Here’s 5 myths from Nolo.com about taking your money out.

Myth: It’s a good idea to name your “estate” as beneficiary of your 401(k), IRA or other retirement plan. Naming your estate as beneficiary limits the options your heirs will have for taking money out of your retirement plan after you die. For example, your spouse might not be able to roll over the plan into his or her own IRA.
Myth: You cannot change the beneficiary of your IRA after you turn 701/2. You can always change your beneficiary. It’s up to you to decide who gets your money after you die. However, you might not be able to change the method for computing how much money must come out of your IRA each year.
Myth: Every year after you turn 701/2 you are required to take money out of your 401(k). If you continue to work past age 701/2 you are not required to take money out of your 401 (k) until you actually retire. There is an exception if you own more than 5 % of the business you are still required to start distributions at age 701/2.
Myth: If you are 70 1/2, you are required to take money out of each IRA you own. If you own several IRAs, a special rule allows you to total the amount that you are required to take from each IRA and then take the grand total from just one. Or you can take the total from several IRAs in any amounts you like.
Myth: Once you reach age 701/2, you must take a specific amount out of your IRA each year—no more, no less. The amount that you are required to take out of your IRA after age 701/2 is a “minimum” required amount. You may take more, but you may not take less.

For more information on maximizing your retirement plans read IRAs, 401(k)s & Other Retirement Plans: Taking Your Money Out, by Twila Slesnick, PhD, Enrolled Agent & Attorney John C. Suttle, CPA 1st edition, Nolo.com, $15.37. To order call 800-992-6656 or order online at (www.nolo.com).

This article first appeared in Volume 5, Issue 6 of "The Social Security and Medicare Advisor" newsletter (May/2000). To receive future editions of "The Advisor" in its special, free e-mail version, please click here.