# Another IRA question



## foaly (Jan 14, 2008)

The other day, my aunt told me it was that time of year when she was required to take money out of her IRA or else she is penalized for it. Does anyone else find this bizarre? (didn't want to hijack the other IRA thread by asking this question)

My question is......if IRA's pay almost zero interest and if the govt. is going to tell us what we can do with our money and when we have to take it out, why do we invest in IRAs? Yes, I know there's some sort of tax break if you can invest in them pre-tax. My employer doesn't offer that benefit. 

I'm seriously considering letting my IRA just sit there and from now on store my pennies in a Mason jar buried in the back yard. I won't earn any interest but at least it will be there if I need it and no one can penalize me for using, or not using, my own money.

Any one else feel this way? :huh:


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## jassytoo (May 14, 2003)

I guess since it's a retirement account they want you to use it for that. No, I don't get that part either. The tax break comes because since you pay the taxes on a traditional IRA when you take the money out, you're probably in a lesser tax bracket so the taxes will be less. If you have a Roth IRA you pay taxes up front and have no taxes on anything taken out. As for interest, that would depend on what your IRA is invested in I would think.Personaly we are are getting all our repairs done and buying what we need now while the economy is still down. When inflation hits our money will be worth less and less.


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## Bret (Oct 3, 2003)

I think that the agency wants to keep the flow in cashflow. Money in a savings jar or a savings acount can be risky. Invest in financial eduation. Read constantly but not to the exclusion of homesteading things that you enjoy. There are some who will be as careful with your baby as you are. You have to know.

Getting nothng on your retirement while inflation is 4% or whatever is very risky. I did not make a lot in my first career and I did not have matching benefits. I always knew that I had to do it on my own. That meant putting away a bigger percentage than average and more agressive things. 

I have made some mistakes. You will make some too. Spread the mistakes out over different things but not more that you can keep an eye on. Don't let doing nothing be one of your mistakes. Dwell on dollar cost averaging for a while. 

There is a tax credit for contributing to your IRA or Roth IRA. Your tax professional can tell you what you can contribute and coach you on what type is best for you.

Keep putting a little away in all ups and downs. It makes us look smarter than we are in the long haul. 

A final thought. When you save it up, you could be saving it for someone else, according to a proverb. Is it not worse than reaching retirement having not prepared?


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## foaly (Jan 14, 2008)

Bret said:


> I think that the agency wants to keep the flow in cashflow. Money in a savings jar or a savings acount can be risky. Invest in financial eduation. Read constantly but not to the exclusion of homesteading things that you enjoy. There are some who will be as careful with your baby as you are. You have to know.
> 
> Getting nothng on your retirement while inflation is 4% or whatever is very risky. I did not make a lot in my first career and I did not have matching benefits. I always knew that I had to do it on my own. That meant putting away a bigger percentage than average and more agressive things.
> 
> ...


Bret--

I appreciate your input. I have multiple investments (liquid, long term, and retirement). However, none of them pays over 0.5%. I do consider myself well read on investments and have followed Dave Ramsey's financial plan to a successful point. In addition with no mortgage, I'm doing okay.

Perhaps I should have titled this thread as "govt. rant!".  I'm just growing weary of govt. intrusion into our lives and my aunt's IRA situation made it even more obvious to me. I'd just like no one but me have control over my money. Call me crazy............


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## Bret (Oct 3, 2003)

Takes one to know one.


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## foaly (Jan 14, 2008)

Bret said:


> Takes one to know one.


 
Crazy Train leaving on Track Zero! Choo-Choo!!!!

I'd rather be called crazy and have control of my money than the alternative, ya know....


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## suitcase_sally (Mar 20, 2006)

The whole point of an IRA is to save for retirement. It's not a regular savings account. The government requires you to start taking money out of an IRA in the year that you attain the age of 70 1/2. The *Minimum Required Distribution* (MDR) percentage starts at 27.4% the first year and decreases by .9% each year (age 71 = 26.5%, 72 = 25.6% ect.). If, say, you only take out 10% the first year, rather than the required 27.4%, then the IRS taxes the 17.4% that you didn't take out, at 50%. That's quite an incentive to follow the rules.

There's nothing that says you can't take the money out of the IRA and put it in some other non-tax-deferred account, such as a savings account. The governmnet gave you the ability to make pre-tax (or tax-deferred) dollars. It didn't give you "tax free" dollars. I guess in that context it _can_ tell you what you can do with your money, because part of that money, the part that you didn't pay up-front in taxes is actually _its_ money.

Now, since your employer didn't offer pre-tax IRA's, I'm not sure that the MDR is required. The rules are dependent on your particular situation (see your tax lady).

Another note - It isn't required for you to set up your IRA through your employer, thus you have many more options on how your money is invested. My accounts have earned 16.3% for this year. If it's a 401-k, then that _is_ required to go through your employer. If, however, all they are offering is a low-interest investment, go for the IRA on your own and seek out better investments.

You say you're tired of "government intrusion", but the government didn't force you to set up an IRA. It's totally voluntary.


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## foaly (Jan 14, 2008)

suitcase_sally said:


> The whole point of an IRA is to save for retirement. It's not a regular savings account.
> 
> You say you're tired of "government intrusion", but the government didn't force you to set up an IRA. It's totally voluntary.


 
Gee, thanks for clearing that up for me. :bash:


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## pancho (Oct 23, 2006)

As of last quarter I made a little over 15% on my retirment fund.
12% is abut the least I have made in years.


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## suitcase_sally (Mar 20, 2006)

foaly said:


> Gee, thanks for clearing that up for me. :bash:


Do I sense negativity?


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## Micheal (Jan 28, 2009)

suitcase_sally said:


> The government requires you to start taking money out of an IRA in the year that you attain the age of 70 1/2. The *Minimum Required Distribution* (MDR) percentage starts at 27.4% the first year and decreases by .9% each year (age 71 = 26.5%, 72 = 25.6% ect.). If, say, you only take out 10% the first year, rather than the required 27.4%, then the IRS taxes the 17.4% that you didn't take out, at 50%. That's quite an incentive to follow the rules.


Are you sure it's a percentage???????
Reason I ask is the chart(s) I've looked at list those numbers as "distribution periods" which I took as more or less a life expectancy?
In other words they take the amount in your IRA, etc and divide it by that amount to give you a figure needed to be withdrawn that year.

Example: $50,000 divided by 27.4 = $1824.82 needs to be withdrawn that first year.

Hey, just askin....


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## suitcase_sally (Mar 20, 2006)

Ooops...you're right, Michael! You take your balance and _divide it_ by 27.4, not multiply by .274.


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## where I want to (Oct 28, 2008)

Basically an non-roth IRA is a legal mechanism to allow pre-taxed earnings to accumulate so that you will supposedly be more independent at retirement, when you start paying the government back the taxes that you avoided earlier. You supposedly get to pay tax at a lower rate due to retirement- that is the break for you. But the government does want the taxes at some point. So based on life expectancy, age 70 1/2 it the date the law decided was the point the government could expect you would start the tax repayent. Since IRAs are a legal construct to avoid taxes early, I don't have a problem with taking advantage of it's benefits while realizing it's rules that are not so generous.I do like heck get angry at the Fed monetary suppression of interest. I dislike the idea that one non-voter-accountable entity can force me to put my own money where I don't want by making it clear that that I can't keep up with inflation it is helping to cause. And it irritates me to no end when my tax money went to prevent those who chose a riskier course from bankruptcy and are now doing well while gloating about it.


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## Michael W. Smith (Jun 2, 2002)

foaly, WHO says IRA's pay almost 0%? It all depends on what you have it invested in.

If you go to the local bank and set up an IRA in a money market fund or CD - yeah, you are getting next to nothing. But you can have IRA's in mutual funds, stocks, bonds, etc. Have it in a stock that makes 15% for the year - and watch your money grow!

If you put money in a traditional IRA, then you got tax deductions when you filed with the IRS. The traditional IRA requires you to take money out at age 70 1/2. Your benefit (in addition to the tax deduction) is that your IRA has grown tax free over the years. Whether you only make 1% (which you shouldn't be) or 15%, you don't pay taxes on it until you actually withdraw it. Those tax free dividends compound over the years. Supposedly in retirement, you have less income, so you are to be paying a lower tax rate.

A ROTH IRA - which you don't get a tax deduction on, is the better deal for younger people. When ROTH's appeared, I transferred all my tradtional IRA's into ROTH's. (Why would I do that when I had to pay taxes on it?) Because the ROTH IRA is TAX FREE. I will never pay ANY taxes once I'm old enough and pull money out. Also, with the ROTH, if I don't need the money, I don't ever have to withdraw it - it will go to my heirs.

I inherited an IRA from my Dad, and have to take yearly distributions from it. The great thing that is happening so far, is I take out my yearly distribution, and by the next year, the amount in the beneficiary IRA is right back up to or over last year's total money in it. In other words - if things continue as they have - I will be taking yearly distributions from it and still be taking distributions from it for years to come - and the principal is never touched! (I'm 45. Thank you Dad!) 

If none of your investments are making over .5%, you must be invested in the safest investments there are - money markets / CD's.


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