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Withdrawing money from your IRA

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Slott advises making the conversion to a Roth as soon as possible. "The sooner that you buy the government out of your retirement accounts, the better. After that, it is all yours. You never have to share with the government again," he says.

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I inherited an IRA -- now what?

If you inherited an IRA from your spouse, you can make it your own, commingling it with other IRAs you may have and only taking mandatory distributions when you reach 70½. You have the option of leaving it as a spouse's IRA, but Hood says there aren't any good reasons to do this because the IRS stopped taking the wife's longer lifespan into account.

When you inherit an IRA from someone other than your spouse, you must begin taking distributions from the account right away, but now you can spread them over your lifetime. The inherited IRA must continue to be clearly marked as an inherited IRA and it cannot be commingled with other IRAs. Move the money in a trustee-to-trustee transfer. Beneficiaries should not take possession of the money -- even for a minute -- or they may owe ordinary income taxes on the whole amount.

In any case, taking the money out of the inherited IRA isn't a good idea. If a 40-year-old woman inherits a $250,000 IRA from her father, she will have to pay taxes on the whole thing, which will leave her with as little as $175,000. If she leaves the money in the IRA, her distribution for the first few years will be 2 percent or 3 percent, not enough to put her into a higher tax bracket. Meanwhile, the money will grow in the tax-advantaged account.

Bankrate.com's corrections policy -- Updated: Oct. 1, 2007
 
 
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NATIONAL OVERNIGHT AVERAGES
IRA MMA 0.51%
1 yr IRA CD 0.77%
5 yr IRA CD 1.84%
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