| BUSINESSWEEK ONLINE : JULY 19, 1999 ISSUE | ||||||||
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| COVER STORY
An Early Dip into Your IRA Turn 59 1/2, and suddenly you have the option of withdrawing whatever amount of money you want from your individual retirement account. Do it before then, however, and, with a few exceptions such as death and disability, you'll face a 10% penalty. But there is a way around having to pay the substantial fine. A little-used loophole allows you to take what the government calls substantially equal periodic payments. Anyone can do this anytime, but be careful: It will deplete your retirement fund, and, if you do the math wrong or skip a withdrawal, the Internal Revenue Service can levy a 10% penalty against every cent that you take. If you are within five years of turning 59 1/2, you are locked into a five-year commitment. If you are younger, you must take money out each year until hitting 59 1/2. GO FIGURE. To do it right, Scott Grittinger, a certified financial planner at Strong Capital Management, recommends that you first figure out exactly how much money you are going to need. The next step is to determine which of three IRS-sanctioned methods will get you there. The life-expectancy method generally yields the smallest payouts. Divide your account's balance by your life expectancy. Go to IRS Publication 590 and determine this using the recalculation, term-certain, or hybrid approaches that are described in the accompanying story. For higher payouts, you might try the amortization method, which incorporates an additional factor--a long-term interest rate published by the government (page 2 of ftp.fedworld.gov/pub/irs-utl/afrs.pdf). You can adjust the total by taking somewhere between 80% and 120% of the official rate, Grittinger says. The annuity method generally nets the highest payouts. Divide your balance by an annuity factor found in UP-1984, mortality tables published by the Conference of Consulting Actuaries (847 419-9090; $15). Once you've drawn up a plan, don't skip withdrawals or switch methods--otherwise you'll get hit with a fine. BY Anne Tergesen _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ BACK TO TOP |
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