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Jim Lentini: Weathering the winds of change

Posted: August 10, 2009 4:20 p.m.
Updated: August 11, 2009 4:55 a.m.
 
Losing a job or a spouse are two of the most stressful life events that can happen to any family.

Your emotions run high. Our current economic issues are increasing the problems for most Americans not only in their work and job stability but also for those in or nearing retirement.

There are personal decisions to make and changes to confront in your everyday life. The last thing you want to think about is your finances. Yet, it's usually the first thing to need attention.

Mortgages need to be paid. Clothing, food and transportation are as important as ever. And, there is the future: Retirement expenses - and perhaps college tuition bills - loom on the horizon.

Where will you go to find the money to help you weather the winds of change?

Today's retirement savings plans offer flexibility you may not know about. If you have money saved in a 401(k) or an IRA, or if you stand to inherit retirement assets or receive them as part of a property settlement in a divorce, you may have access to valuable resources.

But the laws that govern withdrawals from these tax-advantaged accounts are complex, and it is important to understand your options and talk them through with your investment advisor before you take money out to help you through difficult times.

Withdrawals
If your troubles are short term, you are between jobs, or expecting money from an inheritance or divorce settlement-you may be able to withdraw money from your 401(k) or IRA to help you get by until the money starts to flow again.

Your employer or IRA custodian will be required to withhold 20 percent of your withdrawal for federal taxes. But if you repay the money within 60 days, there won't actually be any tax money due (you can settle with the IRS next April 15th).

By repaying the money, you'll also avoid the 10 percent early withdrawal penalty that is tacked on when you're younger than 59 1/2 (55 if you've been let go from your job and you're taking money out of your 401(k)). And, you won't lose a beat with your tax-deferred retirement savings.

Long-term needs
What if your need for funds is more than temporary? No matter what your age, you can always turn your retirement nest egg into a source of regular income - and avoid both penalty and an up-front withholding if you begin to take what the IRS calls substantially equal payments (72t) from your retirement savings.

Your financial advisor will help you calculate the options. It's nice to know that you have this option, but keep in mind that you can't change or stop your withdrawals for five years (or until you turn 59 1/2, whichever comes later).

Talk strategy
When you're in a bind for money to cover your living expenses, it's only natural to look to retirement savings because the rules that govern access to them are very flexible.

But always consider them as a last resort. And, before you act, take time to discuss both your resources and your needs with your investment professional.

Your goal is to avoid penalties - an entirely unnecessary expense -and postpone taxes as long as possible. Your adviser can help you chart your course until more favorable winds come your way.

Jim Lentini, CLU, ChFC, IAR is President of Lentini Insurance & Investments, Inc. and financial advisor for Transamerica Financial Advisors, Inc. He can be reached at (661) 254-7633.

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