The New Rules of Retirement

Chapter 8Managing IRAs to Last

Individual retirement arrangements (IRAs) are simple at first. You contribute some money each year and select some investments. Congress threw in some complications over the years by changing the contribution amounts and phasing out deductions for contributions as income rises if you participate in an employer retirement plan. Some people need some of their money early and have to deal with the 10 percent early distribution penalty and the ways to avoid it. For most people, however, there's not much more to IRAs than contributing and investing.

All that changes as the late-career years approach.

IRAs are among the most valuable assets people own, especially when they rollover 401(k) accounts to IRAs. It is the main source of retirement financing for many people. People now also can choose between traditional IRAs and Roth IRAs, and they have the option to convert a traditional IRA to a Roth IRA.

Managing your IRA to make it last as long as possible becomes vital. There are many rules to know and traps to avoid.

Taxes and penalties can drain significant cash from IRAs. Traditional IRAs provide tax breaks during the accumulation period. Contributions might be deductible, and income and gains compound in the IRA tax deferred. When money is rolled over from a 401(k), the contributions to the 401(k) weren't taxed, and the income and gains earned on the contributions compounded tax deferred. There's a price to be paid for those tax breaks, and that price ...