Actually you can.  There are a few ways to withdrawal money from your IRA without penalty. One of the best ways for some people is Rule 72(t).

Rule 72(t) gives you the opportunity to take advantage of the money inside your IRA and other retirement savings accounts before age 59.5, without penalty.  If you take any money out otherwise, you could pay up to a 10% penalty on the early withdrawal.  Rule 72(t) requires that the IRA owner take at least 5 “substantially equal periodic payments.”  The amounts you can withdrawal depends primarily on life expectancy calculations.

This is a great option for people who NEED to take money from their retirement accounts before the age of retirement. (This is something you need to discuss carefully with your investment and tax advisors.)

The drawback of taking 72(t) withdrawals is possibly depleting your IRAs early and you do have to include these in withdrawals in your tax calculations for the year in which you take them.

Talk to your advisor about Rule 72(t) and how it might benefit your situation.

Tune in tonight at 7:05pm on KQV 1410AM to hear Jim pick the brain of legendary investment expert and Professor of Finance at Yale University, Dr. Roger Ibbotson.  They will be discussing anything and everything from investment strategies, rebalancing, and asset allocation to the myth of the 90% rule…

If you can’t listen live, listen Sunday morning at 9:00am to hear the repeat airing!  For more information on our radio show visit www.paytaxeslater.com and check out the Radio Show page.

3.   Review Your Cash Reserves

It has often been said that “Cash is King”, and “as long as you have enough of it to make your payments you can weather just about any financial storm”. If appropriate, having access to cash can help you keep your options open.

2.   Review Any Payments You Have That Are Interest Rate Sensitive

The idea here is to save on interest payments by checking to see that any payments you are making on loans or borrowed monies are taking advantage of lower rates. If you are considering paying off or refinancing any mortgages or loans don’t forget to plan your cash needs to avoid putting yourself in a jam down the road.

1.   Consider Adjusting Your Interest Rate Sensitive Holdings

If you hold any interest rate sensitive investments like bonds, you will want to limit the chance that you’ll be disappointed if interest rates rise. Take a look at your current portfolio and discuss with your financial advisor how rising interest rates could affect your positions. Rethink your assumptions when analyzing new positions, and be sure to manage expectations for cash flow and principle values based on the effects of an interest rate increase.

With interest rates at extremely low levels, some financial advisors say bond investments currently present a more significant risk to investors than stocks. As the economy recovers, the Federal Reserve may at some point have to raise interest rates, which will inversely affect bond prices. Long-term bonds tend to lose the most value during interest rate increases so many financial advisors have been reducing their holdings in this area and instead avoiding bonds or only recommending bonds that have shorter-term maturities.

An important piece of information for bond investors is a statistic known as “duration.”  In finance, the duration of a financial asset that consists of fixed cash flows, for example a bond, is the weighted average of the times until those fixed cash flows are received. Duration also measures the price sensitivity to yield, the percentage change in price for a parallel shift in yields.  Simply said, the longer the duration, the more sensitive a bond is to changes in rates.

Interest rate risk can be simplified by the following statement:  when interest rates rise, bond prices fall; conversely, when rates decline, bond prices rise. Therefore, the longer the time to a bond’s maturity, the greater its interest rate risk.

Many investors often put a high percentage of their portfolios in bonds when they are very worried about the economy or other financial issues, or after they have taken a beating in stocks. Eventually that concern subsides over time, only to be replaced by greed. That is when investors often spurn fixed income investments and start buying back stocks. Then, when another market cycle ends, they many times get nervous again—and the fear-greed see-saw repeats itself.

So what should the prudent investor do?

Now is an ideal time to review, or revisit your portfolio holdings to identify what if any changes you may need to make. Over the next few days we will go over three basic strategies to consider discussing with your financial advisor to prepare for rising interest rates.

Stay Tuned!

If you are interested in having a detailed portfolio analysis, you may qualify for a free Second Opinion Meeting with Jim.  Call Alice at our office at 412-521-2732 to see if you qualify and to schedule an appointment.

6.       Don’t Procrastinate.

Many taxpayers let their tax preparation hang over their heads until the very last moment. Why wait for crunch time to prepare and review your information? Plan several months before the year-end to visit with your financial professional to discuss your situation and review your recordkeeping. If your tax records are systematically organized and all of your receipts are coordinated, you will save a lot of time when it comes to preparing and filing your return. The IRS suggests in their literature that you review your income, deductions and tax items from the prior year’s return as a potential way to make sure you have not missed anything for this year’s return.

5.       Double-check All Of Your Math And Data Entries.

Many times even the best of us can transpose numbers when handling numerous calculations. The IRS encourages you to even check to make sure you have a full and legible Social Security number for everyone on your return because if the Social Security numbers for your dependants are incorrect, you may get challenged.

4.       Not Adjusting Withholdings When You Change Jobs.

When switching to a new job, you have the opportunity to review your overall tax withholding strategy, particularly if your income will change. Talking with your financial professional allows you to make an intelligent decision about adjusting your federal income tax withholdings as well as your state withholdings. By revisiting your choices, you can avoid any unpleasant surprises at tax time.

3.       Failure to Accurately Track Year-to-Year Carry-over Items.

All taxpayers should check to see if they have any capital losses that could possibly offset current capital gains. Excess amounts of unused capital losses can be carried over to the next year’s return. For example, if you have net capital losses in a prior year in excess of a $3,000 annual deduction limit, they can be carried over to your next year’s income tax return. The same thing goes for any charitable contributions and unused business credits that you can’t deduct in a previous year because of limits on such write-offs. While you still need to monitor AMT considerations, don’t let these carry-over’s get lost in the paperwork. They can potentially save you money.