Financial Planner's Advice: Don't Tap Your Retirement Account!

Business Wire, Oct 7, 2008

SARASOTA, Fla. -- Don't make a costly mistake with your retirement money in today's turbulent financial markets, says Sarasota financial planner Phil Couture.

"Do everything you can to avoid making withdrawals from your retirement accounts to meet immediate cash needs, and take steps to safeguard your long-term investments," said Couture, CFP, president, Couture Financial, Inc., www.couturefinancial.com. "Otherwise, you put your financial future in serious jeopardy."

Taking money from an Individual Retirement Account (IRA) or employer's 401(k) plan can also have serious tax consequences. For instance, the Internal Revenue Service (IRS) typically imposes a 10 percent penalty, in addition to the deferred income tax, on funds withdrawn from a retirement account before age 59.5.

As a Certified Financial Planner who has helped thousands of clients since 1977, Couture has several suggestions for protecting your retirement funds:

* Diversify your investments. Don't put everything into "safe" investments like certificates of deposit (CDs) or other fixed-income investments that do not keep up with inflation. Keep some stocks, real estate and other assets in your portfolio to preserve future purchasing power.

* Don't take out a loan from your IRA or 401k plan. That's tempting when faced with overdue mortgage payments or other immediate debts. But any loan from an IRA must be paid back in full in 60 days. If you have a loan from your 401k and you lose your job, it must be paid back immediately. Otherwise IRS considers the loan as taxable income.

* Be sure your IRA accounts held at a bank are insured. The Federal Deposit Insurance Corporation (FDIC) currently covers up to $250,000 in retirement accounts at any one bank, but any additional funds are at risk. If necessary, move some of those dollars to an insured account at another bank.

* Don't let your bank or other plan custodian give you a credit card or checking account tied to your retirement funds. You could wind up withdrawing excessive amounts, and those funds will count as taxable personal income.

* Be very careful when transferring or "rolling over" your IRA funds to avoid tax penalties. The IRS will only allow you to move the funds "in a rollover transaction" from one custodian to another just once in any 12-month period.

"Remember that retirement accounts are meant for long-term investments," said Couture. "Keep that perspective and sleep better at night."