ABCs for Withdrawing From IRAs
Q: I have accumulated a rather large sum in my individual retirement account and will soon be required to start mandatory withdrawals. However, my accounts are in assets whose value can fluctuate greatly, depending on market condition. What happens if these fluctuations cause me to under-withdraw? Can I be penalized? -- S.T.A.
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A: The value of your IRA for purposes of mandatory distributions is set as of Dec. 31 of the year prior to that in which you are making the withdrawals. Therefore, it is highly unlikely that your withdrawals will be affected by any fluctuations in value because you will have an entire year in which to make the calculations and withdrawals. (Your initial mandatory IRA withdrawal must be made by April 1 of the year following that in which you turn age 70 1/2. All subsequent withdrawals must be made by Dec. 31.)
However, if for some reason a taxpayer fails to make a large enough minimum withdrawal, the potential penalty is 50% of the difference between what was supposed to be withdrawn and the amount actually taken. However, the Internal Revenue Service may waive the penalty in the event of reasonable error and upon demonstration that the taxpayer has taken steps to correct the situation for the future. You must explain to the IRS in writing what happened to you and how you are remedying it. You should attach your letter of explanation to a Form 5329. You must pay the penalty at the time of filing. If the IRS accepts your explanation and grants the waiver, you will receive a refund of the penalty.
Now for some unsolicited advice: If your IRA is as large as you seem to imply, you should seek--and probably can afford to pay for--some professional advice on its management. Did you know that if your IRA grows too large you could be liable for what is termed an “excess distribution” tax? Under this provision, you could be hit with a 15% penalty if the size of your account is greater than what you could withdraw at the rate of approximately $150,000 per year over your actuarial life expectancy.
Mutual Fund Searches
Q: How can I track down a mutual fund company to invest or get information?-- K.J.
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A: The easiest and fastest way of all is to simply call 800 information (800-555-1212), because the majority of funds have toll-free lines. Even funds sold only through brokerage companies and banks often have such lines. But if you are unsure of the name or cannot find a phone number, several directories can be found in local libraries or bookstores.
Books to Help You Bone Up on Investing
Q: As a recent widow I am at a loss to understand the investments my husband left behind. What is your suggestion for the best source for the layman to begin the learning process about investments? -- C.M.
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A: Peter Lynch, the former manager of the Fidelity Magellan mutual fund and widely respected investing guru, has written two books with John Rothschild that are among the best you can find. One is “One Up on Wall Street.” The other is “Beating the Street.” Both books describe the ins and outs of savvy stock picking and offer tips on how to select companies and mutual funds that fit your investment objectives. Another good choice is John C. Bogle’s book, “Bogle on Mutual Funds: New Perspectives for the Intelligent Investor.” All three books should be readily available at your local library or bookstore.
Another source of solid basic information on investments is “The Wall Street Journal Guide to Understanding Personal Finance” by Kenneth M. Morris and Alan M. Siegel.
Tracking Down an IRA From a Failed S&L;
Q: Eight years ago, I opened a one-year individual retirement account at Imperial Savings and Loan. This S&L; seems to have disappeared from the map. Can you tell me where I can find out what has happened to my IRA? -- E.Y.S.
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A: Imperial Savings failed in 1989. It was taken over by the Office of Thrift Supervision and put under the conservatorship of the Resolution Trust Corp. Four dozen of the association’s branches were taken over by Household Bank, which also took control of the failed thrift’s deposits. More recently, Household’s assets were taken over by Home Savings of America.
According to a Home Savings spokeswoman, it is highly likely that your account is still with Home Savings, even though your one-year IRA has long since reached maturity. You should call the Home Savings branch closest to your home to inquire about the account. If you give your Social Security number and account number, thrift officials should be able to search their records for your account.
Your question underscores the importance of keeping close track of one’s investments. Although the safety of your account is not in jeopardy, it is highly likely that the account has not earned the kind of interest it might have had otherwise if you had directed it more closely.
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Carla Lazzareschi cannot answer mail but will respond in this column to financial questions of general interest. Please do not telephone. Write to Money Talk, Business Section, Los Angeles Times, Los Angeles 90053.
