Boomer Benchmark Presents IRA Puzzler

If, instead, you have no intention of using your IRA, and want to leave the money to your heirs, you have a few options.

When you leave an IRA to someone, that person will owe ordinary income tax on the money at withdrawal. To avoid smacking your heirs with a big tax bill, start pulling the money out of your IRA and moving it into a regular investment account. Then your heirs won't owe a dime at your death (estate tax not included, but that's fodder for a different column).

If your adjusted gross income is $100,000 or less, consider converting the IRA to a Roth. You'll owe tax on the whole amount now, but, again, your heirs won't owe anything when they withdraw the money after you're gone.

If you've been blowing off your 401(k) contributions to save for college, cover the costs of an aging parent, or pay for your midlife crisis, consider using your IRA money to get your 401(k) contributions at least up to your employer's match, suggests Bob Scharin, editor of RIA's Practical Tax Strategies, a monthly journal written for tax professionals.

"The deduction you'll get for your 401(k) contributions, plus the additional money you'll get from your employer's match, should wipe out the taxes you'll owe on the IRA withdrawal," says Scharin.

Diversifying your investment portfolio could also be another sound reason to pull the money out of your IRA. For instance, an IRA is prohibited from investing in collectibles, paintings or antiques. But if you believe that any of those items will appreciate faster than the investments in your IRA account (or if the artist is on his deathbed), pull the money out and invest.

The same goes for a regular growth stock like Google (GOOG) or Yahoo! (YHOO). It may be better to pay the tax on that IRA money now, invest in a quality stock and just owe the 15% capital gains tax when you retire.

Inevitably, someone is going to write in and tell me I'm nuts for ever suggesting you pull your IRA money out early. But thanks to very generous capital gains rates, there are clearly some sound financial reasons to do it. So consult your financial adviser and walk through a few different scenarios.

Hopefully, turning 59-and-a-half is uneventful for you and your IRA. But at least have a cupcake to celebrate.

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