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Book Review: A Random Walk Down Wall Street

Right from the start this book will be an excellent read for both financial advisors as well as their clients. Dr. Malkiel provides academic insight on the reasons why passive management works and some great commentary on the use of index funds as part of someone’s overall portfolio. This was the second time I read this book and certainly not the last. It’s great reinforcement on why we invest our clients’ money the way we do and provides solid academic evidence that doing anything to the contrary is counterproductive, more expensive and simply playing a loser’s game. Some of the bigger takeaways from the book are Dr. Malkiel’s thoughts and research on the different part of the Efficient Market Hypothesis or EMH. The EMH consists of three parts – the strong form, the semi-strong form and the weak form. The EMH essential admits that markets are efficient – meaning that current […]

Taking Distributions from Your IRA In Kind

When you take a distribution from your IRA, whether to put the funds in a taxable account or to convert it to a Roth IRA, you have the option of taking the distribution “in kind” or in cash. In cash means that you sell the holding in the account or simply take distribution of cash that already exists in the account. This is the most common method of taking distributions, and it is definitely the simplest way to go about receiving and dealing with a distribution.  Cash is cash, it has only one value – therefore the tax owed on the distribution, whether a complete distribution or a conversion to a Roth account. On the other hand, if you choose to use the “in kind” option, you might just save some tax on the overall transaction.  The reason this is true is due to the fact that the amount reported […]

Using an IRA Distribution and Withholding to Reduce Estimated Taxes

A little-known fact about how withholding works for IRA distributions can work in your favor.  While withholding from a paycheck and estimated tax payments are credited as paid during the quarter actually paid, it’s different for withholding from an IRA distribution. When you have taxes withheld from a distribution from an IRA, no matter when it occurs during the calendar year, it is treated by the IRS as having been withheld evenly through the tax year.  This means that if you had other income in the first quarter of the year, you could take care of the tax burden with a distribution from an IRA and withholding enough tax even in late December of the same year. So – many folks find themselves in this position, especially in years when income is is not equal in each quarter, or if the tax burden was not known or misunderstood throughout the […]

Should I Use IRA Funds or Social Security at Age 62?

Image via Wikipedia Folks who have retired or are preparing to retire before the Social Security Full Retirement Age (FRA) face a dilemma if they have IRA assets available.  Specifically, is it better to take an income from the IRA account during the years prior to FRA (or age 70) in order to receive a larger Social Security benefit; or should they preserve IRA assets by taking the reduced Social Security benefits at age 62? At face value, given the nature of IRA assets, it seems like the best method would be to preserve the IRA’s tax-deferral on those assets, even though it means that your Social Security benefit will be reduced. If you look at the taxation of Social Security benefits though, you might discover that delaying receipt of your Social Security will provide a much more tax effective income later in life.  In the tables below I’ll work […]

One Way to Use IRA Funds to Invest in Your Business

As you know, it is against all the rules to use your IRA to invest in anything which benefits you or a related party.  This is one quick way to get your entire IRA disqualified, quite likely owing a big tax bill and penalties as well. However – and there’s always a however in life, right? – there is one possible way that you could use funds from an IRA to invest in your own business.  It’s a bit tricky, but it is a perfectly legal, in fact encouraged, method. Howzat?  The IRS encourages the use of IRA funds for your own business?  Not exactly.  There’s more to it than that.  The IRS encourages by preferential law the use of Employee Stock Ownership Plan (ESOP) funds to invest in your business.  An ESOP is a type of qualified retirement plan that is designed specifically to invest in the stock of […]

Required Minimum Distributions (RMDs) Don’t Have to Be in Cash, But…

Image by Nerea Marta via Flickr Here’s something that I bet you’ve never run across – when you have to begin taking Required Minimum Distributions (RMDs) from your IRA or Qualified Retirement Plan (QRP), most folks think you must take these distributions in cash. This is not the case, you can actually take distributions of any sort, not just RMDs, from your plan (IRA or QRP) in either cash or “in kind”.  By “in kind”, this means that you can take the actual securities (stocks, bonds, or other investments) from the account.  These distributions in kind can be used to satisfy your RMD for the year.  There can be both pros and cons to taking distributions in kind. Pros in favor of in-kind distributions You might want to consider using an in-kind distribution if your IRA or QRP is fully invested and you want to keep it that way.  Sometimes […]