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Retirement Planning Myths Part II (US)

Retirement Planning Myths: What You Need to Know

Retirement planning is financial planning. As a retiree approaching the time in your life when you have to rely solely on your savings and investments, it is important to know more about your benefits, finances, and how you can reconcile your limited resources with your needs.

There are also a lot of misconceptions regarding retirement funds; and this article is intended to give you some clarity regarding the same:

Myth 1: You are required to take money out of your 401(k) every year after you turn 70 ½ years. This is not correct. In fact, should you decide to work after your retirement, you need not take out money from this fund until you actually retire.

This also holds to be inaccurate in the event that you have multiple IRA accounts. There is, in fact, a special rule allowing you to calculate the amount required of you to take out from each of your IRA and take a lump sum from just one account. You can also take the total from several IRAs in the amount of your choice.

Myth 2: Your beneficiary call roll over your 401(k) funds to their own when you die. If your beneficiary is your spouse, then he/she may roll over your retirement plan into his or her own IRA. No other beneficiary may benefit from this, even your children.

Myth 3: Your children must take all the money out of your IRA and pay taxes on it. With careful planning, you children or any other IRA beneficiary may spread the distribution out over their life expectancies.

Myth 3: You are not required to distribute from a Roth IRA. Though you are not required to get distributions from your Roth IRA during your lifetime, all of your beneficiaries, except your spouse, should start taking distributions after you die.

Myth 4: When you convert your traditional IRA to a Roth IRA, those amounts could be subject to income tax. Converted amounts are not subject to income tax after the year of conversion as you already paid the tax. Nevertheless, these amount may be subject to early withdrawal penalty if you take your money out too soon after the conversion, and you are younger than 59 ½ years.

Myth 5: Once you reach the age of 70 ½, you are require to take a specific amount out of your IRA each year. There is a minimum amount required of you to take out of your IRA. While you can take more than that, you may not take less than the minimum required.




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