One bonus to having a Berky is that it allows you to reallocate your

One bonus to having a berky is that it allows you to

This preview shows page 232 - 235 out of 263 pages.

One bonus to having a Berky is that it allows you to reallocate your investments. This means you can move from one investment to another if one isn’t working as planned. Few people think about doing that when they’re stuck in a mutual fund. They just buy and hold, hoping it all works out. With a Berky, you get to decide when it’s time to let go of an investment and buy into another. One of the biggest bonuses of a Berky is that you can tap it for cash for emergency purposes. Of course, you can do that with your personal Berky, but you can also pull your money out of the IRA-type Berkies without penalty if: You become permanently disabled. You use the money to pay medical bills that exceed 7.5 percent of your adjusted gross income. You use the money to pay for medical insurance during an
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extensive period of unemployment. You use up to $10,000 to help pay for or build a first home for yourself, your spouse, your kids, your grandchildren, or even your parents. That $10,000 is a lifetime limit, not an annual one. You use the money to pay higher-education expenses for yourself, your spouse, a child, or a grandchild. Allowable expenses include tuition, fees, and room and board for postsecondary education, including graduate work. You take the money in equal annual amounts, designed to exhaust the account during the course of your life expectancy (as estimated by the IRS). You can increase this amount by adding reasonable future IRA investment earnings when figuring the size of the payouts. You can begin this kind of early-withdrawal plan whenever you want, but to avoid the 10 percent penalty, you must stick with it for either five consecutive years or until you turn fifty-nine and a half. Early withdrawals from Roths are hit with a 10 percent penalty if you cash in before age fifty-nine and a half, and they lose their tax-free status, but there are ways to get money out of a Roth tax-and penalty- free. First, you can reclaim contributions at any time and at any age without any penalties. Only earnings are subject to penalties. But money that is converted to a Roth must generally stay in the account long enough to meet the five-year test. In other words, you have to keep the money in there for four calendar years after the year of the conversion to avoid the 10 percent penalty. Earnings in a Roth are tax-free if you pass the same five-year test as in a Traditional IRA and also meet the following requirements: You are fifty-nine and a half or older at the time of withdrawal. The money is used for a first-time home purchase (up to the $10,000 limit). The money is cashed out after you’ve become disabled. The money is distributed to your heirs after your death. If you die before meeting the five-year test, heirs would have to wait until
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the year you would have passed that test to withdraw earnings tax-free.
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  • Spring '20
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