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Question: I have a regular IRA with BUYandHOLD. I'm now 70. Do I have to make withdrawals? If so, how do I do this?

Evelyn T

Answer:

Dear Evelyn,

It all depends upon when you turn 70 1/2, not 70. Here are the rules.

(1) If you turned 70 1/2 last year, you must start taking minimum withdrawals from your traditional IRA by April 1. If you miss the deadline, you will be penalized. The penalty is a serious one -- equal to 50% of the amount you should have withdrawn.

In future years you will have to take the withdrawal by December 31. But you can postpone your first withdrawal until April 1 of the year after you turn 70 1/2.

So, if you were born after June 30, 1932 but before July 1, 1933 and you did not withdraw the minimum last year, you have until April 1 of this year to take your first withdrawal.

(2) If you turn 70 1/2 this year (during 2004), I recommend that you take your first withdrawal before December 31, rather than waiting until the following April 1. Then you will not have to take two withdrawals in 2005.

$TIP: Because IRA withdrawals are taxed as ordinary income, taking two in one year might boost you into a higher tax bracket than if you take just one. Check with your accountant.

(3) The amount you must take out is determined by an IRS formula, based on average life expectancies. The withdrawal formula is posted at www.irs.gov.

To learn more about making a withdrawal or distribution from and IRA held here are BUYandHOLD, please visit the Retirement Focus area of the site, select Help Topics, and finally select Distributions. You can also click here to go directly to the area of the site.

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