1. You cannot take money out of your 401(k) plan until you retire.

Most 401(k) plans allow you to borrow money from the plan. Some will even let you take out money for special circumstances, such as to pay medical expenses.

2. If you take money out of your IRA before you are 59 1/2, you will always pay a penalty.

There are many ways to get money out of your IRA without paying a penalty. You can take the money in installments over your life expectancy no matter how young you are. You can also take money out for certain college expenses or to help buy a first home.

3. When you make withdrawals from your IRA, you must take cash. You cannot take shares of stock, corporate bonds or certificates of deposit.

You are permitted to take " property" such as stock shares or corporate bonds out of your IRA instead of selling them first and taking the cash. This rule is helpful when you want to continue to hold certain securities.

4. It's a good idea to name your " estate" as beneficiary of your 401(k) or other retirement plan.

Naming your estate as beneficiary limits the options your heirs will have for taking money out of your retirement plan after you die. For example, your spouse might not be able to roll over the plan into his or her own IRA.

5. You cannot change the beneficiary of your IRA after you turn 70 1/2.

You can always change your beneficiary. It's up to you to decide who gets your money after you die. However, you might not be able to change the method for computing how much money must come out of your IRA each year.

6. Every year after you turn 70 1/2, you are required to take money out of your 401(k).

If you continue to work past age 70 1/2, you are not required to take money out of your 401(k) until you actually retire.

7. If you are 70 1/2, you are required to take money out of each IRA you own.

If you own several IRAs, a special rule allows you to total the amount that you are required to take from each IRA and then take the grand total from just one. Or you can take the total from several IRAs in any amounts you like.

8. If your children are the beneficiaries of your 401(k) or other retirement plan, they can roll over the plan into their own IRA when you die.

A spouse is the only beneficiary who is allowed to roll over your retirement plan into his or her own IRA. No other beneficiary may do so, not even your children.

9. If your children are the beneficiaries of your IRA, they must take all the money out of the IRA immediately after you die and pay taxes on it.

With careful planning by you when you complete your IRA beneficiary form and again when you reach age 70 1/2, your children should be able to spread distributions out over a number of years, possibly even over their own life expectancies.

10. No distributions are ever required from a Roth IRA.

Although you are not required to take distributions from your own Roth IRA during your lifetime, all beneficiaries except your spouse must begin taking distributions after you die.

11. If you convert your traditional IRA to a Roth IRA and then withdraw some or all of the converted amount in the next couple of years, those amounts could be subject to income tax.

Converted amounts are never subject to regular income tax after the year of conversion. You already paid the tax. However, they might be subject to an early withdrawal penalty if you take the money out too soon after the conversion and you are under age 59 1/2.

12. Once you reach age 70 1/2, you must take a specific amount out of your IRA each year -- no more, no less.

The amount that you are required to take out of your IRA after age 70 1/2 is a " minimum" required amount. You may take more, but you may not take less.

Copyright 1999 Nolo.com Inc.