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The Next Step After You Cash in Your Retirement Plan

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Authored by Casey Quinn in Investments
Published on 01-18-2009

After years of working hard to save up money to retire, you are finally there. Standing in front of the light at the end of the tunnel, congratulations! Now it is time to come up with your investment strategy for your retirement. Yup, that is right. Just because you are done working and reached your goals to retire, it does not mean the work is done. Now it is time to invest the cash you saved to ensure you have enough money to last you in your later years.

One of the first hurdles you will come across is how to pull your cash out of the various retirement accounts you have while limiting the tax repercussions. If you were to just take the money out of your 401K or Roth IRA, you will be hit immediately with income tax. This is not a good thing if you had planned on living off of this money for a long period of time. Between the ages of fifty five and fifty nine and a half, your best bet is to leave your money in whatever retirement account you have it in. If you were lucky enough to retire before sixty, try to come up with alternative investments to cover daily expenses; the gains hit from taxes will make it worth your while if you can pull it off. If you do need to pull money from your retirement during that time, expect a hit of ten percent in penalties.

The best way to invest your cash in your retirement years is to leave it alone as much as possible in your tax free growth plans. You should be able to leave your cash in there without penalty until you are seventy years old. After seventy in most plans you are required to pull out the money. No other options available to you will provide the breaks of your retirement plan. This is why most in retirement try to stick to withdrawing only four percent a year. By only withdrawing the cash out of your retirement plan you need to get by year to year, the rest remains growing tax sheltered for even longer.

Two final option if you need to remove your money from your retirement plan or if you have cash not in a plan that is growing tax free, is to invest in an annuity or roll over your cash into an IRA. The benefits of the IRA are that there would not be taxes on the money you withdraw each year and that it can continue to grow tax free. Annuities on the other hand can provide you a steady amount of income for the remainder of your retirement years.

There is no right option for everyone. Depending on how you plan to live your retirement years and where you chose to build your wealth, it will affect what path is best for you. The key is to avoid penalties and tax hits when you withdraw your cash and to make sure where ever you put it, it will last until the end or you might have to go back to work.

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