Before you start taking withdrawals from your tax-deferred accounts, you need a plan for how much to take and when to take it, to be sure that you are: Providing enough income to meet your financial needs, continuing to take advantage of tax-deferred growth and withdrawing the required minimum after you turn 701⁄2 that case, you receive a regular monthly payment that’s usually a fixed percentage of your account value and ensures you’ll withdraw at least the required minimum and perhaps some principal.
During your working life you may have participated in several employer plans and opened a number of IRAs. Knowing where those accounts are and what they’re worth takes on even greater urgency as you turn 701⁄2 and must begin required minimum distributions (RMDs) from tax-deferred accounts. (Distribution is the official term for what are more commonly known as withdrawals that you take from these plans.)
Consolidating your IRA accounts with a single custodian may be a smart move. It may save you money if you’re paying annual account maintenance fees to different custodians. More important, it means that all the information you need on your account values and the way those accounts are invested is contained in one consolidated statement. What consolidation doesn’t mean is that all the IRAs are collapsed into a single account. In fact, you can’t combine a tax-free Roth IRA and a tax-deferred IRA into a single account unless you convert everything to Roth status. Rollover IRAs are generally held separately from IRAs to which you’ve made annual contributions. And, if you’ve made both deductible and nondeductible IRA contributions, you’ll want to be sure to keep records of the amounts in each category since you’ll need them to figure the income tax you owe. Systematic withdrawals, unlike lifetime annuity payments, can be modified or discontinued at any time if your needs change or you rethink your approach to meeting withdrawal requirements or providing the income you need. This makes it easier, for example, to increase withdrawals to adjust for inflation.
Contributions from the book Managing Retirement Income in this press release are used with permission from Light Bulb Press.