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By Jason Stipp | 11-30-2010 03:55 PM

Year-End Portfolio Planning Tips for Retirees

Morningstar's Christine Benz addresses smart RMD, gifting, Roth, and health-care cost management strategies.

Jason Stipp: I'm Jason Stipp for Morningstar.

With the holiday season closing in fast, don't forget to take some time to think about your year-end portfolio planning. A couple of months ago Morningstar's Christine Benz outlined some general year-end portfolio planning tips, but she is here today to talk about some year end tips specifically for retirees.

Thanks for joining me, Christine.

Christine Benz: Jason, great to be here.

Stipp: So the first thing that we want to talk about today are what's known as Required Minimum Distributions. You have some tips for retired investors regarding these RMDs.

Benz: Right. So, Jason, these are the distributions that a retired person must take from retirement accounts, including 401(k)s and IRAs. You have to start taking these once you hit age 70 1/2.

So, the first thing is to mind this deadline date because you will pay an onerous penalty if you don't take RMDs that you were supposed to have taken. So just keep your eye on this deadline.

And the other thing to do is make sure that you have ready cash in your accounts that you can draw from. So you don't want your investment firm to have to decide which of your assets to sell for you. Make sure that you've got that cash carved out for RMDs to come out of your accounts.

Stipp: It's quite possible that you might have a number of traditional IRA accounts. Is there a way that you can be strategic about how much you take from those or are you forced to take a certain amount out of each one?

Benz: Well, it's interesting. All you have to do is, say, you have multiple IRAs, you have to calculate the total amount across all of the IRAs, but then you calculate the distribution that needs to come out of those IRAs, and that distribution can come out of a single account.

So you can be very strategic, and I do think it makes sense to, to the extent that you can, stitch this process together with a rebalancing process. So if you've gone through and done the work and determined that, "Oh, I need to lighten up on emerging market stocks," for example--that might be a logical place to take your distribution from.

Stipp: So basically something that you might think about selling anyway?

Benz: Exactly.

Stipp: So, you had mentioned that there is a penalty. Is there a way that you can make sure that you can avoid this penalty? What's a good process to put in place to make sure that you are taking what you need to take and then you don't get socked for something and have to pay the government when you wouldn't have to otherwise?

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