59 1/2 Is the Magic Number for IRAs
QUESTION: I was told that a person can take distributions from an individual retirement account with no penalty any time during the year in which he or she turns age 59 1/2. In other words, even if he didn’t turn 59 1/2 until November, he could begin taking distributions now because the withdrawal would be reported as part of this year’s taxable income. I’ve been looking for verification of this but can’t find it anywhere. Can you help?--E. F.
ANSWER: You can’t find it, the Internal Revenue Service and IRA specialists say, because it isn’t so.
In order to avoid paying a 10% penalty for premature withdrawals of savings from an IRA, you must refrain from withdrawing any of the retirement money until the day you reach age 59 1/2. Waiting only until the year in which you turn 59 1/2 is not good enough.
There are some exceptions. Verifiable disability and court-ordered payments in divorce settlements and the ability of your heirs to withdraw the money upon your death, are the most notable.
Q: I am looking for a reference book that lists the names of publicly traded companies and their stock symbols. I have been told that something called the Poor Register is my best bet but I haven’t had any luck locating it. Do you have any advice?--C. C.
A: There is a hefty reference book published by Standard & Poor’s called the Standard & Poor’s Register. But although it lists thousands of major U.S. businesses and the executives who run them, the directory doesn’t cite the companies’ stock symbols.
For that, you may find a smaller--and cheaper--Standard & Poor’s directory more helpful. It is a monthly booklet called Standard & Poor’s Security Owners Stock Guide. In addition to providing the stock symbols for about 5,000 stocks, the guide also quotes stock price trends and various other performance measures.
Like its cousin, the Standard & Poor’s Register, the stock guide is available in many public libraries. If you prefer to subscribe to the service, a one-year subscription costs $88. It is available by writing Standard & Poor’s, 25 Broadway, New York, N.Y., 10004, or calling the firm’s toll-free number: 1-800-221-5277.
Q: I’ve heard mixed reports on whether the interest earned on IRA savings is still tax deferred under tax reform. Do you know if it is?--G. C.
A: Taxation of the money you earn on these retirement accounts is still deferred until the money is withdrawn--regardless of whether you still qualify for tax-deferred contributions to an IRA under the new tax laws.
Beginning this year, married taxpayers who have an adjusted gross income of $50,000 or more and are covered by a pension plan at work can no longer deduct IRA contributions from their taxable income at tax time. (For single taxpayers covered by an employer’s pension plan, the cutoff is $35,000.)
The law doesn’t prohibit any wage earner from contributing money to an IRA. Up to $2,000 per working taxpayer may still be salted away every year. But only the interest income earned on those savings will be excluded from taxation until the money is actually withdrawn upon retirement.
If you are among the taxpayers who no longer qualify for tax-deferred contributions to an IRA but still want the full benefits of a tax-deferred retirement plan, you might inquire whether your employer has a so-called 401-K retirement savings plan.
Although they, too, have been hurt by tax reform, 401-K plans are tax-deferred savings accounts that permit employees to put aside up to $7,000 of their salary a year. (Employers, however, often limit the annual savings to 6% of the employee’s salary).
