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Withdrawing money from your IRA

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For all subsequent years, the deadline is Dec. 31. If you take advantage of the grace period and put off taking your first distribution until the following year, there will be consequences that may be expensive. In your second year you also will have to take a distribution, so if you put off taking the first one, you will have to take two sizable IRA distributions in one year. That may bump you into a higher tax bracket, which means you'll pay more tax unnecessarily.

What if I have a bunch of IRA accounts?

If you have money in various places, especially if they are in dribs and drabs, think about consolidating under one umbrella -- a fund family or a brokerage or other single financial management company. If your money is spread out, each entity will calculate what you owe on the money they shepherd and send you a notice. Hopefully, that information won't get lost. Both you and the IRS will add up what you owe and you'll submit the proper amount.

While there's no legal reason not to spread the money around, in practicality it is more difficult to keep track of multiple accounts. If you and the IRS come up with a different figure, the IRS will pounce, and right or wrong, you'll pay.

If you were a first-time offender, you can petition the IRS to waive the penalty, or if you were right, you can ask for a correction, but Hood says either procedure will take the better part of a year, and if you pay your accountant to handle the problem, you may end up owing him as much as you get back from the IRS. So making it easy to get it right can be worth some small loss in investment diversity.

I don't need the money right now. Are there any creative ways to get around this?

Beginning in 2010, there are no income limits that prevent you from converting a conventional IRA to a Roth IRA from which there are no mandatory distributions. The money continues to grow tax free, even after you die and leave the Roth to your heirs.

The only limit is your willingness to pay the taxes on the money you convert. By planning ahead, you may be able to limit other income in the year or years that you make the conversion. Stevens tells her clients, "Convert just enough to push your income up to the threshold of your marginal tax bracket -- and then continue to convert a little every year."

Next: "Beneficiaries should not take posession of the money ... "
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