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Using funds in a qualified plan to buy muni bonds

Q

My husband and I are looking into investing in bonds to generate an income stream so we can build a retirement home and use the money to pay the mortgage. What tax implications are there for taking money out of a 401K or an IRA to invest in the bond market? We think that this might be the best way to go for us, but we have to look at the cost involved. Can you offer any information regarding this dilemma?

J.R., Arizona

A

James A. Klotz responds:

If you are not referring to your mandatory distribution, there can be penalties as well as tax consequences for withdrawing funds from a qualified plan. Typically, funds can be withdrawn from an IRA at the age of 59 1/2 with no penalty and mandatory distributions must be taken starting at age 70 1/2.

Because there are many different scenarios that might apply, we suggest you contact us or your tax advisor to discuss your specific situation.

Apr 15, 2005

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