MONEY Taxes

IRS Eases Rules on Ebola Donations

The Internal Revenue Service has cut taxes on Ebola relief and simplified making contributions to fight the outbreak.

MONEY Taxes

How to Never Miss Out On One Valuable Tax Break

Odometer
James F. Dean—Getty Images

Workers who drive a lot for business can write off the costs. These three tools can make tracking those miles on the road easier.

More than 40 million Americans earn money while driving around in their cars, making them eligible for a valuable business mileage deduction from the Internal Revenue Service.

At 56¢ a mile, less than two business miles equals a dollar. So for someone driving 25,000 business miles a year, $14,000 in deductions is at stake.

Keeping an accurate mileage log used to be an arduous task involving a notepad and paper, but most people do not bother with the work. Many recreate their trips after the fact. Some just make it up. Do it wrong and you could get an audit.

“Getting a lot of round numbers means people either aren’t tracking or are rounding,” says P.J. Wallin, 33, a certified public account from Richmond, Virginia.

Bill Nemeth, an enrolled agent who represents clients in IRS audits, says most of his clients tend to exaggerate their business mileage and, when audited, it can be challenge to try to prove they actually drove the miles. Nemeth says he even uses Carfax reports from cars that clients have sold in order to document the actual mileage of the vehicles. In more than 25 years of doing taxes, Nemeth can recall only one client who presented a log that was clearly used daily.

MileIQ, which sells a GPS device that helps track mileage, surveyed about 1,000 of its users and found that only 36% of them had kept a written log previously. Another 18% admitted to making up numbers after the fact, 15% said they did nothing with their mileage, and 11% said they used their calendars to go back and recreate driving distances.

But in today’s highly automated world, apps and standalone GPS devices take the work out of the process, so there are no more excuses. Prices and functions vary, and some personal preference is involved.

Here are three different approaches – all of which are tax-deductible as a work expense.

MileIQ

This iPhone app (scheduled to be out soon for Androids) promises to be more automated than its cousins—always running in the background. It costs $5.99 a month or $59.99 a year. Lighter drivers, however, can use it for free. Users can log 40 drives a month before they would have to take a paid subscription, so you can take it for a test drive.

The idea is that the app does most of the work, although eventually users have to look over the results and eliminate listings that were not for business. Data from the app is regularly uploaded to the cloud, and reports sent automatically via email. Users can also customize the data.

MileIQ co-founder Charles Dietrich says the app actually learns from patterns and increasingly knows when a trip is of the reimbursable sort and when it is not.

Easy Mile Log

This device, which costs $149, is a small GPS tracking device you leave in your car. When you start a drive, press a button to note the trip is either work or personal. It will document the date and time of your travels, where you started, where you went and the distance. You can dump the data from the device onto your computer using a USB cord.

EasyBiz Mileage Tracker

At $2.99, EasyBiz Mileage Tracker is a cheaper app option, but not quite as automated as the others. Instead, it relies on the user to create what is basically a computer-assisted mileage log – starting and stopping each trip, while it notes the location and the distance via GPS.

Mileage Tracker allows users to customize report printing and add other entries – like tolls, for instance – that could come in handy when doing mileage reports.

MONEY Taxes

IRS Bumps Up Retirement Fund Contribution Limits

You can now save more in your tax-deferred retirement accounts.

Good news: The IRS has bumped up retirement account contribution limits for 2015 to reflect cost-of-living increases. So if you’ve been wanting to sock away more in your tax-advantaged accounts, next year is your opportunity.

Today’s announcement raises the annual contribution limit for 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan by $500 to $18,000. The catch-up contribution limit for employees over age 50 also increased from $5,500 to $6,000.

IRA contribution limits and IRA catch-up contributions, however, will remain the same, at $5,500 and $1,000, respectively, meaning older workers can still set aside $6,500 a year in these accounts.

This follows Wednesday’s announcement that retirees will see a 1.7% cost-of-living bump in their Social Security benefits next year.

Contribution limits are reviewed and adjusted annually to reflect inflation and cost-of-living increases. Last year, 401(k) and IRA limits remained unchanged from 2013 levels because the Consumer Price Index had not risen enough to warrant an increase.

For more details about the changes and more information about the new gross adjusted income limits for certain tax deductions, see the table below or the IRS website.

Screen Shot 2014-10-23 at 12.20.19 PM

Read more from the Ultimate Retirement Guide:

 

TIME faith

Is Alliance Defending Freedom the Next Hobby Lobby?

God Meets Profit as Justices Weigh Obamacare Contraceptive Rule
Paul Clement, lawyer arguing before the U.S. Supreme Court on behalf of Hobby Lobby Stores Inc. and Conestoga Wood Specialties Corp., center, speaks to the media with David Cortman, senior counsel and vice-president of religious liberty with Alliance Defending Freedom, right, following arguments in Washington, D.C., U.S., on Tuesday, March 25, 2014. Bloomberg—Bloomberg via Getty Images

Eric Yoffie was President of the Union for Reform Judaism from 1996 to 2012.

If a church or its religious leader wants to enter the partisan political fray and support a specific candidate, that is one step too far

Electioneering from the pulpit is a very bad idea, but champions of this particular bad idea seem to feel that its time has come. Let’s hope, for the sake of religion in America, that they are wrong.

On October 5, referred to by its organizers as “Pulpit Freedom Sunday,” more than 1,500 pastors preached sermons about political candidates and their views on matters before the electorate. The day was organized by Alliance Defending Freedom, a group that advocates the absolute right of clergy to endorse candidates or parties without interference from the government or the IRS.

According to IRS regulations, churches can speak out on issues and values; however, they are forbidden to participate in political campaigns or to intervene in any way on behalf of any political candidate. A pastor can give a sermon on poverty or health care, but violates IRS policy if he endorses a candidate. Breaking these rules can lead to the revocation of the church’s tax-exempt status.

The rules, supported by most Americans, are eminently sensible. Freedom of speech and religion are guaranteed by the Constitution, and a priest, rabbi or imam can say whatever he or she pleases from the pulpit. But the Constitution does not guarantee places of worship the benefits of tax exemption, which are considerable. According to Dylan Matthews in the Washington Post, these subsidies cost the government $80 billion in revenue every year. In short, the American people value religion and are prepared, by way of their government’s taxing authority, to foot the bill for much of the good work that places of worship do. But if a church or its religious leader wants to enter the partisan political fray and support a specific candidate, that is one step too far. In that case, the church is required to give up its tax exemption and pay for its electioneering itself.

But the Alliance disagrees. It contends that freedom of religion confers on clergy the right to endorse local, state and national candidates from the pulpit while their churches retain all of their tax benefits. And the purpose of its current campaign is to prod the IRS into taking action against a pastor who violates the rules, thereby generating a test case that it can carry to the U.S. Supreme Court.

One would like to think that the efforts of the Alliance are doomed to failure. Indeed, for most of the last half century, such a campaign would have seemed fanciful, if not absurd. Its goal, after all, is contrary to both established practice and common sense. Nonetheless, there is reason for concern.

In the first place, the IRS has not consistently enforced its own policies. While the overwhelming majority of clergy do not endorse political candidates, there are exceptions; conservative, Evangelical churches, such as those organized by the Alliance, are one example, and left-leaning African-American churches are another. It’s interesting that Pulpit Freedom Sunday was also the day that New York Governor Andrew Cuomo, running for a second term, visited churches in Queens and Brooklyn to ask for support from black congregants. At the Greater Allen A.M.E. Cathedral in Jamaica, Queens, the Rev. Floyd H. Flake, a former congressman, expressed his support for Cuomo, offering the equivalent of a political endorsement if not a formal one.

Part of the issue seems to be that the IRS does not want a challenge in the courts. Therefore, it has refused to be goaded into taking action by the law breakers, and in particular by the Pulpit Freedom Sunday participants, who have been holding an annual event and growing in numbers for six years. But ignoring enforcement is always a bad strategy. It breeds disrespect for the law and encourages more pulpit law breaking from every political direction.

In the second place, if the IRS finally stands its ground and the result is a legal challenge that reaches the Supreme Court, it is more likely now than before that the Supreme Court will be sympathetic to the Alliance arguments. In Burwell v. Hobby Lobby Stores, Inc., arguably the most significant case of the Supreme Court term, the Court granted a special status to religious objectors and religious freedom that was seemingly without basis in precedent. This is good in some ways, but not so good in others; freedom of religion is not absolute and needs to be balanced against other rights and freedoms. It is hard to imagine the legal grounds for a decision that would grant churches the unrestricted right to enter the political process while still benefiting from the financial largesse of the taxpayer, but such an outcome is no longer impossible.

Once ministers, priests, rabbis and imams are entitled to endorse candidates without restriction, they will be increasingly pressured to do so. The same people who pour money into political campaigns will direct their dollars to houses of worship. And churches, synagogues and mosques will no longer be places of worship; they will be political bazaars.

Rabbi Eric H. Yoffie, a writer and lecturer, was President of the Union for Reform Judaism from 1996 to 2012. His writings are collected at ericyoffie.com.

TIME Ideas hosts the world's leading voices, providing commentary and expertise on the most compelling events in news, society, and culture. We welcome outside contributions. To submit a piece, email ideas@time.com.

MONEY Taxes

4 Myths About the Home Office Tax Deduction

Man in home office
Make your home office work for you. Thomas Barwick—Getty Images

Misconceptions about the home office deduction cause Americans to lose out on significant savings.

One of my favorite tax perks available to real estate investors as well as many other professionals is the home office deduction. It allows you to shift what would otherwise be personal non-deductible expenses into legitimate business write-offs. Although the break is not going to rank as your largest, it can provide you with a worthwhile amount of savings when used correctly.

For example, if you repainted your entire house for $8,000, and your home office accounts for 20% of your space, $1,600 ($8,000 x 20%) is now a legitimate tax deduction.

I am still surprised by how many people I meet who qualify for the deduction but do not take it, I suspect because of incorrect information.

Here are four common myths about the home office deduction, and why they should not deter you from nabbing the savings.

1. You need a room where you work solely on business activities- and nothing else.

It is true that you need a part of your home that is used exclusively for business purposes. That said, it doesn’t have to be a full room. If you have an area within a room where you review your property management reports, that should qualify. Just make sure the separation is clear, perhaps with a partition.

What doesn’t work: if you use your dining table to run your businesses, since its primary function is to eat. Some people tell me they never dine at the table and only work from it. Still, even in that case, I recommend not claiming your dining room or dining table as your home office. The IRS has successfully challenged in court homeowners who have tried that argument.

Related: What Can I Deduct? The Answer That Will Save You on Real Estate Taxes

2. Your home must be the only place you do business.

Often people don’t take the deduction if they have another office where they can work from time to time. Yet the IRS specifies that your home office must be the “principal” place of business, but not the only one. Thus even if you have access to other offices you’ll still qualify, assuming you do most of your work in your home.

Here is an example: I met recently with a client who owns some out-of-state rental houses, which are cared for by a local property management company. As an investor, he simply reviews the management reports and deals with the professional caretaker from his home office. Previously he never took a home office deduction because he was told that his home did not count as the primary place of business, since a property management company cared for the homes and it was located outside the state. But he got bad information. As long as you are managing your properties from your home office, the fact that you have property managers out-of-state won’t disqualify you.

3. Taking the deduction is complex.

Starting in 2013 the IRS simplified the method for calculating home office write-offs. Anyone who fails to keep precise records will appreciate the new rules.

Rather than holding onto receipts and calculating your actual expenses, you can instead opt for a standard deduction of $5 per square foot, up to 300 square feet, for a total annual write-off of up to $1,500. So you have no tasks over the course of the year.

Related: 7 Common Tax Mistakes of New Real Estate Investors

4. You’re more likely to get audited.

One of the most common myths is that taking the deduction flags to the IRS that you should be audited. But that isn’t true today. Changes to the rules, including the new simplified method introduced in 2013, have made it easier for people who truly work out of their homes to qualify. What’s more, research shows that close to half of Americans have home offices that they work from at some point during their lifetime.

Missed taking the deduction last year? Even if you already filed your tax returns and only now realize that your home office is eligible, simply file an amended return for last year to claim your refund.

 

More from BiggerPockets:
4 Foolproof Steps to Painlessly Resolve Tenant Complaints

10 Surefire Ways to Fail As a Beginning Real Estate Investor

5 Secrets to Increasing the Profit of Your Rental

 

Another version of this article originally appeared on BiggerPockets, the real estate investing social network. © 2014 BiggerPockets Inc.

MONEY Taxes

5 Things to Know If You Still Haven’t Finished Last Year’s Taxes

Practicing golf in office
You can't put off finishing your taxes for much longer. Jan Stromme—Getty Images

Attention tax procrastinators: Time’s nearly up if you filed for an extension last spring.

Remember the relief you felt last April when—faced with a looming tax-filing deadline—you simply applied for an automatic six-month extension for your 2013 return? The dread is back. October 15, next Wednesday, is the filing deadline for everyone who took advantage of the government’s grace period. As of the end of September, more than a quarter of the nearly 13 million taxpayers who had filed for an extension had yet to file, according to the IRS. If you’re one of those procrastinators, here’s what you need to know.

1. This time the deadline is real. No more extensions (one exception: members of the military serving in a combat zone). If you don’t file and pay your tax bill, you’ll get a failure-to-file notice. And you’ll start the clock on a failure-to-file penalty (5% of your unpaid taxes per month, up to a max of 25%), a failure-to-pay penalty (0.5% of your tax bill per month, up to a max of 25%), and interest (currently 3%).

“You could have three things adding up month by month if you do nothing by October 15,” says Mark Luscombe, principal federal tax analyst for Wolters Kluwer, CCH. Of course, if you’re expecting a refund, there’s no penalty for not filing—and also no refund until you do.

2. Do nothing, and the IRS will eventually file for you. And you may not like the results. That’s because the IRS will base your tax bill on the information it has, such as the income reported on your W-2, notes White Plains, N.Y., CPA Paul Herman. But they won’t know other things that could lower your tax bill, like all the deductions you’re entitled to or what you paid for stocks, bonds, or mutual funds you sold last year.

3. If you can’t pay your entire bill, throw out a number. File your return for sure—that at least saves you the failure-to-file penalty. When you do, request an installment agreement (Form 9465), and propose how much you can pay a month, or the IRS will divide your balance by 72 months. If the offer is reasonable, says Herman, the IRS may accept it.

4. Free help hasn’t gone away. Through October 15, you can still use the IRS’s Free File program, which makes brand-name tax-filing software available at no cost if your income is $58,000 or less. Earn more than that, and you can still use the free fillable forms at the IRS website.

5. You have one less way to cut your taxes. You’re out of luck if you had hoped to trim your tax bill by funding an individual retirement account for 2013 (depending on your income, as much as $5,500 was deductible last year, $6,500 if you’re 50 or older). Even though you got an extension to file, the deadline for opening an IRA for 2013 was last April 15. (Make a note: You have six months to open a 2014 IRA).

However, if you switched a traditional IRA into a Roth IRA last year—which meant a tax bill on your conversion—you still have until October 15 to change your mind. That’s something you might do if the value of your Roth has since dropped. You can “recharacterize” the conversion (in effect, switch back to a regular IRA) and then convert to a Roth again later, this time realizing a smaller taxable gain and owing less in taxes.

Finally, if you find yourself doing your taxes every fall, think about changing your ways. Maybe invest in a better system for organizing your records? “If you waited this long,” says Herman, “try to begin planning earlier for next year.”

MONEY Taxes

Don’t Fall for the ‘Steve Martin’ IRS Phone Call Scam

Caller ID showing phone scam
Rod Crow—Alamy

Callers claiming to be government agents with names like "Steve Martin" and "Jack Dawson" say that you owe unpaid taxes, and you'll be arrested asap if you don't pay up. It's a big scam—apparently, one that's spreading.

A phone scam that first appeared nationally a year ago and has ripped off victims for more than $5 million is showing no signs of slowing down. In October 2013, the IRS issued a warning concerning a “pervasive telephone scam” that had popped in nearly every state in the country—victimizing recent immigrants in particular—that played out in the following way:

Victims are told they owe money to the IRS and it must be paid promptly through a pre-loaded debit card or wire transfer. If the victim refuses to cooperate, they are then threatened with arrest, deportation or suspension of a business or driver’s license. In many cases, the caller becomes hostile and insulting.

The Treasury Inspector General for the Taxpayer Administration (TIGTA) and the FTC followed up with warnings about the scam during tax season, by which time more than 20,000 suspect calls had been reported, and victims had been bilked of more than $1 million. Based on how lucrative this con has been for fraudsters, it’s no wonder that the calls keep on coming. By August, the IRS was compelled to send out another warning, alerting the public that the number of complaints about such calls had surpassed 90,000, and losses by victims had exceeded $5 million.

In recent weeks, amid continued reports in Ohio, Delaware, New Jersey, and other states, the FBI issued an alert with more details about the “intimidation tactics” used by callers. There may be threats to “confiscate the recipient’s property, freeze bank accounts, and have the recipient arrested and placed in jail. The reported alleged charges include defrauding the government, money owed for back taxes, law suits pending against the recipient, and nonpayment of taxes. The recipients are advised that it will cost thousands of dollars in fees/court costs to resolve this matter.”

It has been widely mentioned on scam warning Internet forums that the voices on the end of the threatening phone calls often have thick accents—variously described as Indian, Middle Eastern, or Asian—and that they identify themselves as IRS agents with names that are sometimes generic American (Julie Smith, John Parker, Barry Foster) and other times seem pulled directly from Hollywood movies. “Steve Martin,” the original “Wild and Crazy Guy,” is one of the favorite fake names used by the scammers. “Jack Dawson,” the name of Leonardo DiCaprio’s iconic character in “Titanic,” is another. At times, the callers have been known to become abusive and use foul language, telling the call recipients, “Don’t be stupid” and “your ass will wind up in jail.”

All of these “problems” can go away, the scammers say, if the victim makes a payment of $500 or $1,500 immediately—ideally in an entirely untraceable way, such as a prepaid money card or wire transfer.

Before rolling your eyes and thinking you’d never fall for such a scam, note that the con involves a caller ID trick that makes it look like the call is originating from a number that is indeed used by an IRS office. Yet as the FTC warned, “You can’t rely on caller ID. Scammers know how to rig it to show you the wrong information (aka “spoofing”).” What’s more, callers often have some of the victim’s personal information handy, such as the last four digits of a social security number. Further calls and bogus “IRS” emails may follow the original call, in order to the make the demand for payment seem more legitimate.

Rest assured, it’s not. If you’re at all uncertain if you’re dealing with a scammer, bear in mind the following:

• The IRS almost always contacts people about unpaid taxes first by mail, not by phone.

• The IRS never asks for immediate payment over the phone, never requests payment information (for example, a debit card number) over the phone, and never specifies a certain form of payment for unpaid taxes.

• It is not standard procedure for IRS agents to call after normal office hours are over, nor to threaten people that more calls will follow if you don’t comply immediately, nor to swear at taxpayers.

If you do get a call that you suspect to be a scam, do NOT give out or confirm any personal information, and most certainly do NOT wire money or make payment of any sort. Hang up the phone right away, and then report the incident at the TIGTA hotline (800-366-4484). File a complaint with the FTC as well.

MONEY Taxes

How Identity Thieves Stole $5.2 Billion from the IRS

Invisible Man at computer
Getty Images

And how to make sure you won't be their next target.

More than $5 billion, with a B: that’s how much the IRS estimates it mistakenly paid to identity thieves last year, according to a new study from the Government Accountability Office. The thieves filed fraudulent tax returns on behalf of unsuspecting citizens, and the IRS didn’t catch the fraud until after long after the refund checks had been sent. The only good news? It could have been a lot more money. The IRS estimates it identified and stopped another $24.2 billion in attempted fraud — but the agency acknowledges it’s hard to calculate the full extent of the problem.

Here’s how thieves get away with it: You usually receive a W-2 from your employer by the end of January, then file your tax return by April 15. During that time, thieves steal your identifying information, file fake returns on your behalf, and collect the refund check. It all happens pretty quickly, since the IRS tries to issue your refund within three weeks of receiving your return.

Employers have until March to send their W-2s to the Social Security Administration, which later forwards the documents to the IRS. The IRS doesn’t begin checking tax returns against employers’ W-2s until July. The GAO has found that it can take a year or longer for the IRS to complete the checks and catch the theft.

The easiest way you can deter this kind of fraud? File early, and file electronically. Once the IRS receives a return with your social security number, the agency will reject any duplicate filings and notify you right away. The IRS is also piloting an initiative to issue single-use identity protection PIN numbers to taxpayers who have verified their identities.

Still, the danger could be growing: As recently as 2010, tax- and wage-related identity theft made up just 16% of all ID-theft complaints at the Federal Trade Commission. Last year that portion rose to 43%. Below are four more common ways ID thieves can strike — and what you can do to protect yourself.

1) Purloined paper.

Have tax documents sent to a P.O. box or delivered electronically so they can’t go missing. Shred extra copies. “Your tax return needs to be treated as an item of extreme privacy,” says Staten Island CPA John Vento.

2) Unsecure networks.

Never file electronically over public Wi-Fi or a network that’s not password-protected. Make sure you have up-to-date antivirus software and a firewall on your home computer.

3) Dodgy emails.

Be leery of any email claiming to be an IRS notice of an outstanding refund or a pending investigation; the IRS will never email you to request sensitive information. Forward suspect messages to phishing@irs.gov. Other electronic traps: fake websites similar to irs.gov, and tweets purporting to be from the IRS (@IRSnews is the verified handle).

4) Phone fakes.

In October of last year, the IRS warned of a sophisticated phone scam in which callers already knew the last four digits of your Social Security number and mimicked the IRS toll-free number on your caller ID. If the IRS calls you out of the blue, hang up and call back (800-829-1040).

This advice was excerpted from MONEY’s 2014 Tax Guide.

TIME People

Former IRS Official Says Politics Didn’t Affect Her Work

IRS'S Lerner Invokes Her Constitutional Right To Silence
Lois Lerner, the director of the Internal Revenue Service's (IRS) exempt organizations office, listens during a House Oversight and Government Reform Committee hearing in Washington on May 22, 2013. Bloomberg/Getty Images

Lois Lerner spoke out for the first time since a scandal led to outrage from Tea Party groups

The IRS official at the center of a scandal over alleged targeting of conservative groups says in a new interview that her personal political leanings never impacted her work.

“I didn’t do anything wrong,” Lois Lerner told Politico in an interview published Monday, her first since the scandal broke more than a year ago. “I’m proud of my career and the job I did for this country.”

Lerner was drummed out of the agency and became a lightning rod for conservative criticism after reports detailed how the tax agency gave extra scrutiny to conservative political groups seeking nonprofit, tax-exempt status. Later reports showed liberal groups were also given extra scrutiny, but the issue quickly became a political headache for the Obama Administration.

Congressional Republicans investigating the matter have accused Lerner of letting her liberal political leanings influence her work, but she was unapologetic in the interview.

“What matters is that my personal opinions have never affected my work,” Lerner said.

She again denied being involved in a cover-up by destroying emails saying, “How would I know two years ahead of time that it would be important for me to destroy emails, and if I did know that, why wouldn’t I have destroyed the other ones they keep releasing?”

[Politico]

MONEY Ask the Expert

How To Tap Your IRA When You Really Need the Money

140605_AskExpert_illo
Robert A. Di Ieso, Jr.

Q: I am 52 and recently lost my job. I have a fairly large IRA. I was thinking of taking a “rule 72(t)” distribution for income and shifting some of those IRA assets to my Roth IRA, paying the tax now while I’m unemployed and most likely at a lower tax rate. What do you think of this strategy? – Mark, Ft. Lauderdale, FL

A: It’s a workable strategy, but it’s one that’s very complex and may cost you a big chunk of your retirement savings, says Ed Slott, a CPA and founder of IRAhelp.com.

Because your IRA is meant to provide income in retirement, the IRS strongly encourages you to save it for that by imposing a 10% withdrawal penalty (on top of income taxes) if you tap the money before you reach age 59 ½. There are several exceptions that allow you to avoid the penalty, such as incurring steep medical bills, paying for higher education or a down payment on a first home. (Unemployment is not included.)

The exception that you’re considering is known as rule 72(t), after the IRS section code that spells it out, and anyone can use this strategy to avoid the 10% penalty if you follow the requirements precisely. You must take the money out on a specific schedule in regular increments and stick with that payment schedule for five years, or until you reach age 59 ½, whichever is longer. Deviate from this program, and you’ll have to pay the penalty on all money withdrawn from the IRA, plus interest. (The formal, less catchy name of this strategy is the Substantially Equal Periodic Payment, or SEPP, rule.)

The IRS gives you three different methods to calculate your payment amount: required minimum distribution, fixed amortization and fixed annuitization. Several sites, including 72t.net, Dinkytown and CalcXML, offer tools if you want to run scenarios. Generally, the amortization method will gives you the highest income, says Slott. But it’s a good idea to consult a tax professional to see which one is best for you.

If you do use the 72(t) method, and want to shift some of your traditional IRA assets to a Roth, consider first dividing your current account into two—that way, you can convert only a portion of the money. But you must do so before you set up the 72(t) plan. If you later decide that you no longer need the distributions, you can’t contribute 72(t) income into another IRA or put it into a Roth. Your best option would be to save it in a taxable fund. “Then the money will be there if you need it down the road,” says Slott.

Does it make sense to take 72(t) distributions? Only as a last resort. It is true that you’ll pay less in income tax while you’re unemployed. But at age 52, you’ll be taking distributions for seven and a half years, which is a long time to commit to the payout plan. If you get a job during that period, the income from the 72(t) distribution could push you into a higher tax bracket. Slott suggests checking into a home equity loan—or even taking some money out of your IRA up front and paying the 10% penalty, rather than withdrawing the bulk of the account. “Your retirement money is the result of years of saving,” says Slott. “If you take out big chunks now, you might not have enough lifetime to replace it.”

Do you have a personal finance question for our experts? Write to AskTheExpert@moneymail.com.

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