Your Individual Retirement Account (IRA): Resolutions for Wealth & Happiness in 2009

by David Fessler, Advisory Panelist, Investment U
Wednesday, December 31, 2008: Issue #908

Tonight, we look to the New Year and, hopefully, our resolutions for wealth and happiness in 2009. For many, it could be as simple as saving more and contributing to an IRA account. It’s one of the easiest ways to secure a comfortable future.

Unless you’ve just arrived from another country, most of you reading this know IRA stands for an Individual Retirement Account. It’s probably a safe bet that many of you have them and make regular contributions to one, or to a similar workplace retirement account.

Perhaps you have plans to ultimately use the money to fund your retirement, help out with children or grandchildren’s education, or perhaps to purchase a second home.

Suffice to say, it’s never too late - or too early - to start contributing to an IRA. And I can’t think of any reason not to contribute the maximum amount possible. My father used to say, “If you don’t have it, you’ll never miss it.” In addition, many employers will match your contributions to some level, some as high as 50%.

I’m not going to spend time talking about the virtues of contributing to an IRA, or about the miracle of compounding. My colleagues at Investment U have written on this at length. You can read about it in Investment U Issue #785, Your Retirement Plan: Have You Calculated Your Number?

But regardless of whether you are starting out, currently contributing or looking to start making withdrawals, it pays to know a few of the mechanisms behind how you can get to your money. Here are some of the things you need to consider…

When to Use a SEPP Program With Your IRA

Barring any unfortunate circumstances, you will eventually reach the age (normally 59 ½) when you can start voluntarily withdrawing funds from your retirement account.

If you decide to take funds out earlier than 59 ½, you’ll owe ordinary income tax on them, and you’ll be assessed a 10% early distribution penalty.

But like just about everything else in our complicated tax code, there are exceptions to this rule. One of them allows an individual to take assets out under a SEPP Program. SEPP stands for Substantially Equal Periodic Payment and it allows you to take funds out of an IRA regardless of your age.

If you have a short-term need for cash, you should consider other alternatives.