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Retirement IRA Account Distribution Tips and Traps

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December 17, 2011 - Required Minimum Retirement IRA Account Distribution Tips and Traps - by Morningstar Investment Research

The tax-deferred compounding you get via an IRA or a company retirement plan enables you to grow your savings without having to fork over taxes on your investment earnings year in and year out. However, at some point, the Internal Revenue Service says, "Enough is enough; it's time for us to take a cut." This is when required minimum distributions, or RMDs, take effect. All retirees must begin taking RMDs from their traditional, SEP, and SIMPLE IRAs, as well as 401(k), 403(b), and 457 plans, by April 1 of the year following the year in which they turn age 70 1/2. (Got that?) They must then continue to take distributions by Dec. 31 of each year thereafter. Roth IRAs aren't subject to RMDs--after all, the IRS has already gotten its cut--but oddly, Roth 401(k)s are. Morningstar director of personal finance Christine Benz says retirees ex ert more control than they think over the timing of RMDs, and she provides a few RMD dos and don'ts.

How Safe Is Your Cash?

A few years ago, I remember hearing that money market funds were covered by FDIC protection just like certificates of deposit and savings accounts. Are money market funds still FDIC-insured?

The short answer is no, according to Christine Benz. Money market fundholders don't have the same guarantees that holders of CDs, money market deposit accounts, and checking and savings accounts have. But money market fund investors were accorded extra protections when the financial crisis evolved in 2008. At that time, a large money market mutual fund, the Reserve Primary Fund, "broke the buck," meaning its holdings dropped in price, which in turn caused the fund's net asset value to drop lower than $1. That event prompted the Treasury Department to start a new program, similar to FDIC insurance, for money market funds, though the program expired the following year, meaning that the Treasury, FDIC, or any other entity no longer insure the assets in money market mutual funds. However, Benz offers some pointers on why you should still keep such funds in mind.

Among the other topics we addressed this week:

Morningstar Launches New Fixed-Income Sectors. New scheme provides hierarchy and greater detail to bond fund portfolios.

Nominees for Fixed-Income Manager of the Year. Kicking off our 2011 Manager of the Year Awards.

Our Five Nominees for Domestic-Stock Manager of the Year 2011. These managers boast a good year and a great long-term record.

Our Five Nominees for International-Stock Manager of the Year. This year's quintet has distinguished itself in tough conditions.

Spotlight on 2011 ETF Fund Flows. Were ETF fund flows chasing or predicting performance in 2011?

Zynga's IPOVille Is Not Child's Play. Potential investors in the newly public social game maker should consider four critical challenges before playing with the stock.

Finding Ways to Get Around European Risk. BlackRock's Richard Turnill notes that it's important for investors to remember that a European stock is not the same as the European economy.

New Regulations for Funds May Affect Your 2011 Tax Bill. How will the Regulated Investment Company Modernization Act of 2010 affect investors' current and future tax bills?

Popular Large-Growth Fund to Close. Sentinel readies a fund makeover and more.

These Top Funds Are Beating a Tough Benchmark This Year. In 2011's tumultuous environment, these top-rated funds have proved that boring can be beautiful.

Two Proposed--and Interesting--CEFs in the Pipeline. Separate proposed offerings by both managers of open-end RiverNorth DoubleLine Strategic Income look rather interesting.

Vanguard Total Bond Market ETF Surpasses iShares Barclays Aggregate Bond ETF for the First Time. Global X launches Greece, Nasdaq ETFs. Plus, the week's best- and worst-performing ETFs.

Agreeing to Agree to Do Something Really Serious. The EU summit statement lacked any of the details or enforcement mechanisms that we wanted to see.

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