Lillian asks the following question about IRA’s:

Q: How can I save the most taxes for next April when I cash out part of my IRA? It is not a Roth, it's a mutual fund type that increases and decreases depending on the market. I am also thinking about converting some of it into a self-directed IRA.

A: Since this is a regular IRA, the amount you cash out will be subject to tax at your ordinary income rates. In addition, you will be subject to a 10% early withdrawal penalty unless you are at least 591/2 in the year you make the withdrawal.

You can avoid the 10% penalty by converting the IRA to a Roth IRA and then waiting 5 years to withdraw the principal. The only other way to effectively offset the tax is to invest the proceeds from the withdrawn funds into an oil and gas development project, where you will receive a deduction of up to 70% of the investment in the first year. Be sure you do your due diligence on any investment of this type and recognize that oil and gas investments can be risky.

There is no tax when you convert to a self-directed IRA. Be sure to do a trustee-to-trustee rollover, where you never get the money, but it goes directly from the old trustee (custodian) to the new trustee without going through your personal bank account.

Warmest regards,

Tom