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You're Retired! Now What?

You worked a lifetime to build your retirement assets, now how do you take retirement-plansdistributions? Any discussion about retirement income usually starts with required minimum distributions, or RMDs.

MIND YOUR RMD

If you contributed to any qualified retirement plans or accounts, including a 401(k) plan and traditional IRA, you must begin taking RMDs by age 70 1/2, with some exceptions. Your plan custodian or advisor should determine your RMD by using uniform life expectancy tables. If you don’t take your full RMD, you'll pay a 50% tax on the amount not taken.

TAXABLE OR TAX-DEFERRED?

Once you get your RMD squared away, compare your tax rates on taxable and tax-deferred investments if you need to withdraw additional funds. For the former, capital gains on investments held at least a year and a day aren’t taxed (at 15%) until your adjusted gross income reaches$77,200 (married filing jointly). The same couple’s income must exceed $479,000 to trigger a 20% tax.

If your ordinary income tax bracket is lower than the capital gains rate, you might consider tapping the tax-deferred accounts rather than realizing taxable gains. If the tax rates are similar, consider letting the tax-deferred potential build-up if your qualified retirement plans continue. Capital gains are realized in the year the investment is sold.

THEN ROTH LAST

After you’ve tapped your other assets, you might begin spending down a Roth account, which doesn’t have RMDs and whose distributions are tax-free.

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