Don't Retire Broke by Rick Rodgers

Author:Rick Rodgers
Language: eng
Format: epub
Publisher: Career Press
Published: 2017-12-30T05:00:00+00:00

SIMPLE IRAS

Savings Incentive Match Plan for Employees (SIMPLE) IRAs follow the same rules as traditional and SEP IRAs. However, during the first two years a SIMPLE IRA is open: Any premature distribution that doesn’t qualify for one of the exceptions is subject to a 25% penalty, rather than 10%; and it can only be rolled into another SIMPLE IRA, in which case, it will continue to be tax deferred.

ROTH IRAS

Although investors may withdraw their contributions at any time without tax or penalty prior to age 59½, distribution of earnings is considered premature and is subject to a 10% penalty. Exceptions to the 10% penalty include:

• Unreimbursed medical expenses in excess of 10% of your adjusted gross income.

• Qualified higher education expenses.

• Payment of medical insurance during a period in which you received unemployment compensation for at least 12 weeks.

• Distributions from an inherited IRA.

• An IRS levy.

• Distributions taken as a series of substantially equal periodic payments (72(t) payments).

Additionally, any earnings distributed from the account before it is five years old are subject to ordinary income tax. There are exceptions to both, however, including:

• Rollover within 60 days.

• Death.

• Permanent disability as defined by the Internal Revenue Code.

• Purchase, building, or rebuilding of a first home ($10,000 lifetime limit).

(See the forthcoming section “Tips for Taking an Early Retirement” to find out more about how to maximize distributions before age 59½.)

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