IRA Tax Implications at 59 1/2.
I established a traditional IRA brokerage account with Fidelity in 1999.
I funded this account with money from a pre-tax and matching 401k rollover and a pension cash out from a previous employer.
The current value of the IRA is now less than the initial starting amount due to stock losses and trading fees exceeding any gains and dividend income.
I am 4 years away from 59 1/2.
What are the tax liabilities that I am I will be facing if I decide to take normal distributions?
Is there any reference material that I can review so that my visit to an accountant will be with some knowledge and preparation?
Any help on this issue would be greatly appreciated.
Alan
Permalink Submitted by Al Fry on Fri, 2007-11-23 02:18
Try http://www.72t.net.
Permalink Submitted by Al Fry on Fri, 2007-11-23 02:23
In order not to pay a 10% penalty on distributions, you may have to do 72(t) SEPPS. The 72t.net site will help you.
Permalink Submitted by Alan Spross on Fri, 2007-11-23 02:27
This is a simple situation of having all your traditional IRA distributions taxed at ordinary income rates.
Since you did mention any other IRA accounts funded with any non deductible contributions, I am assuming there are none.
The investment losses that were incurred have no tax impact other than the diminished values were never taxed in the first place, so at least the losses are not as costly as if you had paid taxes on the contributions.
Normal distributions cannot start until you are 59.5. If you need access to the IRA account before then you would need to initiate a 72t plan in order to avoid the early withdrawal penalty. Such a plan would have to be maintained for 5 years in your case. You are better off if you can wait until 59.5, when the early withdrawal penalty will disappear and you will just be faced with ordinary income tax.
Since this is a simple tax situation, any accountant should have no problem with it. The IRA custodian will issue a 1099R every January reporting any distributions you have taken, and they simply are reported on line 15 of your Form 1040. If you do need funds before 59.5, the 72t plan does have complex calculation and execution rules, so in that case you might need more professional assistance to get it set up correctly.