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Retirement Myths (US)

 (US) Retirement Myths: Debunked

Many misconceptions arise before or during your retirement. And it’s about time you debunk these retirement myths to begin with:

Myth 1: You are not allowed to take money out of your 401(k) plan until your retirement.

Wrong. The rule is that any money you take out of this plan before you reach the age of 59 1/2 is considered as an early distribution. This means that you are required to pay a penalty and income tax for on it. Many plans have exception to this rule though, however, allowing you to take your money out early and penalty free; for instance, to cover medical expenses. There are also plans that allow you to borrow money without penalty.

Myth 2: Taking money out of your traditional IRA before reaching the age of 59 ½ always imply a penalty.

Wrong. There are ways by which you can get money out of your IRA without having to pay for penalty. For instance, you can the money in installments over your life expectancy regardless of how young you may yet be. You can also even take money out for certain college expenses or as you require some funds to acquire a new home. Keep in mind though that as you are allowed to take money out of your traditional IRA without paying a penalty, you are nevertheless required to pay income tax on the money.

Myth 3: IRA withdrawals are always in the form of cash

Wrong. You are permitted to take “property” ranging from stocks, corporate bonds, or certifications of deposit out of your IRA instead of selling them first and taking the cash. This is helpful for those who want to continue to hold certain securities.

Myth 4: It’s a great choice to name your “estate” as your beneficiary.

Wrong. Naming your estate as beneficiary for your 401(k) or other retirement plan could yield more disadvantage than advantages. For instance, naming your estate as your beneficiary can limit your heirs’ options for taking money out of your retirement plan upon your death.

Myth 5: You cannot change your IRA beneficiary after you turn 70 ½.

Wrong. In fact, you can always change your beneficiary. It’s always up to you to decide who benefits from your money upon your death.

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