www.youtube.com/watch?v=VkFPRAh1vOc

This is kind of a funny little question. About 329 people asked this. “I’m 57½ and I’m retiring from my company. Can I start taking money out of my 401k?”

And the answer to that is so complicated, so before you start making this decision, don’t run out there and do anything that I say without talking to a qualified financial planner.

But let me address it like this:  The IRS says that as long as you’re 55 years of age or older and you retire from the company and your money stays at that company’s 401k, then yes, you can start taking money out without the 10% penalty.

Now let’s say you’re 57½ and you take that money and you roll it over into your own individual retirement account or an IRA for short, can you start taking that money out? And the answer is, again, it’s complicated. If you take money out before you’re 59½, you’re going to be hit with a 10% Federal penalty on top of ordinary income taxes, and your state may also have a penalty on top of that. California has a 2½% penalty.

You can do something, however, called a 72t. That’s the section of the tax code that allows you to take money out of an IRA prior to age 59½ without paying the penalties. Now, in doing a 72t, you’ve got to understand that most CPAs do not understand how this things works, and I’d say even more financial planners have no clue. I’ve actually done them with clients based on their specific goals and specific needs that we needed to do with them, and they are very complex. So complex, in fact, one of my great clients we were doing a 72t with, and they took all the information to their tax planner the next year, and the tax planner said, “oh, Pete did everything wrong. You’re now going to get taxed on that money, the penalty.” And he called me up, flustered, “hey, my CPA says you did everything wrong. This is a great CPA. He knows his stuff.”

I replied, “Did you give him the letter that I gave you?” And he says, “well, no, I didn’t.”

See, one of the things we do, because we realize that most CPAs, it’s not that they don’t know this, it’s that they don’t do it like we do it, and they don’t do it as often as we do it. In fact, most CPAs, this may be the first time they’ve ever even heard of a 72t. We actually give our clients a step-by-step letter saying, give this letter, complete with all this documentation, to your CPA and it walks them through how to fill it out on the tax form so you don’t have to pay the penalty.

Are you ready for this? There’s two questions on your IRS form that allow you to avoid that 10% penalty, but you’ve got to know which two questions they are and how to mark them correctly. And quite frankly, most people just don’t know.

Now, one of the drawbacks of doing a 72t is this:  If you start a 72t, you have to do it for at least five years or until you’re 59½, whichever is later. So what that means is, let’s say you’re 57 years old. You start this 72t, you’re going to have to do that for five years. Not just until you’re 59½ but beyond that another three years, just to comply with the IRS regulations on this.

So it is very complex, how much money you actually get to pull out, because it’s not just, well, I’m going to pull out any amount I want. They’ve actually got a guideline, a formula that you have to follow that says, this is how much you get to pull out, and it’s based on many factors, including your age, how much money you have in the account on a certain date, and what the current mid-term interest rates are.

And if that wasn’t enough to throw you, that’s why I’m saying, most people don’t know how this stuff works, so before you implement that strategy, make sure you talk to a financial planner that knows exactly how it works. If you’re not working with one, feel free to give me a call. My number is 800-990-2734, or you can reach me via e-mail:  pete@petemitchellinc.com.

www.youtube.com/watch?v=21SVln0mybg

Some people still want to be able to contribute to their IRA for the tax year of 2009, and they want to know, “Is it too late to put money into my IRA for the tax year 2009?”

Here we are in 2010 and the answer to that is that you’ve actually got until April 15^th of 2010 to contribute to your IRA for 2009. So if that’s something that you’ve been looking to do, you’re going to have to go ahead and take care of that really, really soon or you’re not going to be able to put money in for 2009.

If you don’t have a financial planner that you’re working with, feel free to give me a call. I’ll be more than happy to help you. Go to my web address. It’s right there at the top:  petemitchellinc.com.

I look forward to sharing more information on the markets and investments with you later.

www.youtube.com/watch?v=-ZqRVfZq8GY

Don’t miss the IRA contribution deadline! Make sure you make your 2009 IRA contribution before April 15! With stocks performing so well these days, fully funding your IRA for 2009 (and 2010) could mean a tremendous boost toward saving for retirement.

If you’ve been contributing $50 or $100 to an IRA each month, there’s room to contribute a lot more. Putting $600 or $1,200 in your IRA annually is nice, but you can direct up to $5,000 into your IRA for tax year 2009 (and up to $6,000 if you turned 50 in 2009). This $5,000 (or $6,000) limit can be split between a traditional IRA and a Roth IRA. The maximum contribution may be reduced if your modified adjusted gross income, or MAGI, is really high.¹

As for your 2010 IRA contribution … you have until April 15, 2011 to make it, but you can also make it this year and cross it off your to-do list. There’s really no point in waiting until April 2011 to make that 2010 contribution – if you wait that long, you’ll potentially lose 15 months of interest and compounding.

Don’t delay – e-mail me today so I can help you fully fund your IRA. You may call me at 800-990-2734 or e-mail me at pete@petemitchellinc.com. I look forward to speaking with you.

¹ irs.gov/retirement/article/0,,id=202510,00.html [11/10/09]