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When is the best time to withdraw from an IRA?

Q Our savings are in conventional IRAs, certificates of deposit, money-market accounts, and stock. I am 69 and my wife is 65. I realize that at 70 1/2, we have to start withdrawing from these funds. At this time, we have two deductions for our income taxes. So removing funds at this time and at my income level will cost about $150 in taxes per $1,000 removed. When the time comes that there is only one deduction, it appears even more money will be taken for taxes. Our present income is from Social Security and a pension plan. Should we remove more funds from the IRA now to get a greater benefit of two income-tax deductions?

J.A., Marlton, N.J.

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A "Withdrawing from the IRA should be based on your need," says Ed Slott, an accountant, and editor of Ed Slott's IRA Advisor, a newsletter. "If you need the money now, begin the withdrawals. But if you don't need the income, let it grow tax-deferred as long as you can."

In addition, you are only legally required at age 70 1/2 to begin drawing down your IRA, not your other accounts, unless they too are in IRA-type instruments.

Besides confusing "deductions" with "exemptions," Slott says you may be confusing your tax rate (which is apparently 15 percent), with the number of your deductions, used to determine withholding. It is true that your taxable income will be slightly higher if you have only one exemption. But your tax rate will not necessarily be affected by that, unless you are right on the line of a rate shift, from one tax bracket to the next.

Q I know this comes just before the April 17 tax-filing deadline, but here's my question: I have all the tax data that I need to file except for one item: the amount of a small taxable payment made to us from an estate. The amount is about $2,000. What should I do?

G.W., N.Y.

A According to the Ernest and Young Tax Guide, file now and send an amended return later. Also, make a guess/estimate now as to the amount of the tax that will be due on your estate payment. Send the tax, with an explanatory note, with your 1040.

Questions about finances? Write:

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Guy Halverson

The Christian Science Monitor

500 Fifth Ave., Suite 1845

New York, NY 10110

E-mail: halversong@csps.com

(c) Copyright 2000. The Christian Science Publishing Society