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In spite of the wobbling market environment this year, plenty of folks have thousands of dollars stashed in their IRAs. And for those turning 70 1/2 next year, it's time to get serious about MRDs.

MRD stands for "minimum required distribution". It's an Internal Revenue Code that states one must begin taking money from certain tax-deferred retirement accounts---like IRAs---for the year in which they turn 70 1/2. So, if you're 70 today and not yet dipped into the cash within your IRA(s), the IRS rules say that in a few months you'll have to start.

"The objective is to make sure that the government gets paid on the money that it has let you defer for so long, " explains Christine Fahlund, senior financial planner at T.Rowe Price.

Fahlund is an expert in MRDs and IRAs and was instrumental in creating T.Rowe Price's latest educational guide, Minimum Required Distributions, A Self-Guided Tour. It's a must-have for people with IRAs and if the amount of money invested in that kind of tax-deferred account is any indication, there are plenty of you. At the end of 1999, for example, mutual funds accounted for $1.2 trillion of the estimated $2.5 trillion IRA market, according to the Investment Company Institute, the trade association for the mutual fund industry.

Decide not to follow the IRS guidelines on MRDs and you'll be whacked with very hefty penalties. The guide reads: "For any year in which you do not take an MRD and are required to do so, there is a 50 percent penalty tax on the amount that should have been distributed but was not."

In an interview with Fahlund, we talked about what IRA investors need to know about MRDs.

Q: What's the most important thing to know here?

Fahlund: You need to know that when you get close to 70 1/2, you'll have to pick an MRD strategy and the emphasis is on the word "strategy."

The strategy has three components or issues to it and as a result, you'll be asked to make three decisions. The first, who is the beneficiary on each account going to be. The second is a life expectancy choice, and the third, the method for calculating the MRD.

Each one of those decisions impact the other and the amount of money you're required to take out. So, you have to focus first and foremost on what's most important to me about this money. Does it have to last and create income for me? Or, is it money I don't need? Or, do I want to leave it to someone or an institution?

Q: If I've started taking money out of my IRA when I was 59 1/2, do I have to still consider MRDs?

Fahlund: Not until you're age 70 1/2.

Q: Can I select different strategies for each of my IRAs, if I have more than one?

Fahlund: Yes. Keep in mind that different MRD strategies result in different dollar amounts. One of the unique features of this guide is that it looks at four different portraits , three are married couples with children and one is a single woman with no children, and in dollars and cents in the grids at the bottom of the page shows how choosing various beneficiaries impacts the MRD results.

Choosing a single or joint life expectancy also makes a difference as does the method of calculation--fixed or recalculation.

Q: Can you change your beneficiaries say when you're 75 or 80?

Fahlund: Once you've chosen your MRD strategy it is "irrevocable" but you can change the beneficiary after 70 1/2. However, you cannot lengthen the maximum payout period but you can shorten it. So, let's say you decided to change your beneficiary from your son to your sister who is older than he is. That would be fine but would also mean that life expectancies would change and since your sister is older would mean that your payments come out faster, larger and incur more taxes.

Q: So with people living longer lives, making sure that they have assets to last and knowing what MRDs are all about is serious business.

Fahlund: Right The silver lining is, it's doing you a service at an age when you really ought to be reviewing all of these issues anyway. You need to review beneficiary designations when your are 70 1/2, you need to look at your entire estate and your plan may have changing significantly since the last time your took a look. So it's not a bad time to ask where am I going, what do I want to have happen with my assets, and what are my priorities in terms of my own financial well being.

To order a free copy of the T.Rowe Price Minimum Required Distribution; A Self-Guided Tour, call 1-888-421-0563.

To read more articles, please visit the column archive.

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