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Rules of thumb to tap retiree nest eggs

Published Aug. 24, 2005

Retirees fortunate enough to have a variety of investments often find themselves pondering which ones to tap first.

Invade the IRA or let it keep growing tax-deferred as long as possible? Sell the stock mutual fund or cash the CD when it matures? The best answer isn't always the obvious one.

While it usually is better to spend taxable money first, there are instances in which that rule of thumb may not apply.

Are you in a low tax bracket? If you can keep the tax on your withdrawals at 15 percent or less, it's probably smart to gradually drain your traditional IRAs. This is especially true if you have large IRAs and eventually will be required to take big distributions that will push you into a higher tax bracket.

If you don't need the money you withdraw for income, consider rolling it into a Roth IRA. (Mandatory distributions are not eligible for rollover.) You'll have to pay taxes on the distribution, but future earnings inside the Roth will be tax-free. Roth IRA withdrawals should be saved for last. Those withdrawals will be tax-free for you or for your beneficiary if you don't need the money.

Do your taxable accounts include appreciated stock you'd like to leave your family? Your beneficiaries will inherit investments in taxable accounts with the tax basis stepped up to the value at your death. That means they can avoid the capital gains tax you would have to pay if you sold the stock yourself. It may make sense to leave your stock untouched.

If you have decided to tap your taxable accounts for income, give some thought to which investments to sell. At the top of your list should be the least tax-efficient investments, such as taxable bonds, bond funds and CDs. You might want to hang on to tax-exempt bond funds and dividend-paying stocks, since dividends are taxed at lower rates.

If you need to sell stocks, consider selling your losers if you have any, and realizing a capital loss. If losses exceed gains, you can deduct up to $3,000 from your ordinary income.

However, taxes shouldn't be your only consideration and they don't matter at all if you are selling investments inside an IRA or other retirement account. Selling decisions should take into account which investments fit best with your current goals and how you want your money allocated among stocks, bonds and cash. For example, if you want to reduce your stock exposure, that objective should take precedence over tax considerations.

If I give to the tsunami relief effort through or in jars at restaurants or church offerings, is it tax deductible?

Donations are deductible if they are made to churches and qualified U.S. charities such as the American Red Cross, which is the recipient for the collection efforts at It's always best to get a receipt or canceled check to prove any contribution in case your return is audited. If you give $250 or more at any one time, you must have a written acknowledgment from the charity.

Dropping cash into a jar in a public place isn't a good way to donate to charity. You won't have a receipt and your donation may not make it to its intended destination.

The site is a pretty good Web site, but why can't I access my account on weekends? It's very inconvenient.

Here's the scoop from Treasury spokesman Pete Hollenbach. He says Treasury Direct currently operates in two forms. Treasury bills and notes are sold through the older version, which accepts orders online, by mail or telephone. This system was developed before the Treasury envisioned people checking their accounts online and there are times when account information is not available.

The newer version, in which all transactions are handled online and information is available around the clock, is now limited to savings bonds. Sometime next year, you should be able to purchase bills and notes through the newer version. Sometime after that, you will be able to transfer your existing holdings from the old version to the new. In the meantime, you'll have to check your account on weekdays.

Helen Huntley writes about investing and markets for the Times. If you have a question about investments or personal finance, send it to On Money. We'll try to answer those we think are of greatest reader interest. All questions must be submitted in writing, but readers' names will not be published. Send questions to or Helen Huntley, Times, P.O. Box 1121, St. Petersburg, FL 33731.

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