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Qs. I will be 70 1/2 in December of this year. My IRA is with the Vanguard family. Is it better to take the required minimum distribution before or after the December capital gain and dividend distribution?

- Granny.

A. Granny, according to the pros, the bottom line is it doesn't really matter.

Brian Mattes, vice president of public relations at The Vanguard Group said that because your money is in a IRA, which is a tax-deferred account, the capital gains distribution is irrelevant.

"The reason is because you're already sheltered from the tax effect of the capital gains distribution, " says Mattes.

There are, however, some other issues worth noting regarding your age and the timing of your initial required minimum distribution. Mattes said that you have two options. One would be to take a distribution in the year in which you turn 70 1/2---which for you would mean this year, 1999. The other, wait until next year and then, thanks to the quirky laws, take two.

The law states that required minimum distributions must begin the year following the year in which you turn 70 1/2. So, decide not to take your first distribution this year and next year you'll have not one but two distributions to take; one before April 15, the second before December 31.

"If she turns 70 1/2 on Dec. 1 of this year, she can take a distribution on Dec. 2, which is fine and meets the requirement under the law, " explains Mattes. "Then she'll have to take another distribution some time during the course of the year 2000. And, every year thereafter. But, she has the option of waiting until April 15, of next year to take her first distribution. If she exercises that option, she must also then take another distribution before the end of the year."

What are the tax consequences once distributions begin and you start withdrawing money from an IRA? All that money will be taxed at you marginal income tax rate.

"Nothing that you take out of an IRA is subject to capital gains tax rates. Ever, "says Mattes. "Once you put something into an IRA, whenever it comes back out, it comes back out as taxable income. Not as a cap gain which is why her question about cap gains in December is completely a nonevent to her."

"Inside an IRA account, it doesn't matter if you buy, sell or trigger gains. The IRA itself is a tax-exempt vehicle, " says Richard Franklin, a tax attorney at the firm of Myers, Krause & Stevens, in Naples, FL. When it comes to distributions, Franklin says that the minimum distributions is computed based on the value of the account at the close of the prior year.

If you're a Vanguard shareholder, nearing retirement and have distribution questions like Granny's, contact Vanguard's retirement resource center at 800-622-2739. Folks there will calculate the appropriate minimum required distribution amounts on your Vanguard funds. Failing to take out the appropriate amount of money can result in big-time penalties. So take advantage of this free service.

Speaking of retirement, T.Rowe Price has just introduced a program designed specifically for folks who either have already retired or are about to. It's called the Retirement Income Manager. Its purpose is primarily to help investors figure out how much income they'll be able to spend each month from their retirement coffers and still have that money grow and last into the future.

"We've run a lot of people through the program and have found many who have unrealistically high spending rates. And they don't always realize that, " says Steve Norwitz, vice president at T. Rowe Price.

One of the unique aspects of the program is that the numbers it calculates are arrived at based on a computer generated program that looks at 500 different market scenarios. This means that the program looks at good markets, bad markets and everything else in between and from that determines an income and investment strategy that's best for you personally. It also calculates minimum required distributions.

The Retirement Income Manager is best suited for those with at least $200,000 in their retirement accounts. There is a one-time $500 fee for the program. For more information, contact T.Rowe Price at 800-566-5611 on weekdays between 8 a.m. and 10 p.m. eastern time.

To read more articles, please visit the column archive.

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