Tip No. 3: Don't Forget April 1

Did you turn 70½ last year? Make sure you tap your IRA before April 1.

ARE YOU AN IRA owner who turned 70 1/2 last year? If you haven't already started tapping your traditional IRA, then April 15 isn't the only IRS deadline you need to heed next month. You also are required to take your first minimum withdrawal no later than April 1. That's right, April Fool's Day. But this is no joke.

The tax law states you must start taking mandatory payouts from traditional IRAs (but not from Roths) no later than April 1 of the year after the year you turn 70 1/2. So if you (or one of your parents) turned 70 1/2 in 2001, the deadline is just a few weeks away. Of course this also means you get stuck with the resulting income-tax bills. (The whole idea here is to make people who would otherwise leave their IRAs untouched start taking taxable withdrawals.) And if you fail to take at least the minimum withdrawal amount by April 1, the IRS can sock you with a penalty equal to 50% of the shortfall. So this little rule isn't something you can afford to ignore.

Now, if you already took IRA withdrawals last year that equaled or exceeded the amount of your initial required minimum withdrawal, you're blissfully unaffected by the April 1 deadline. Instead, you simply must take your next withdrawal by the end of the year.

But if you didn't take a withdrawal last year, here's what you need to do. You then use a joint life-expectancy figure (based on your age and someone 10 years your junior) to calculate your initial required minimum withdrawal. Using the joint life-expectancy figure results in a lower minimum-withdrawal amount, which means lower 2002 taxes for you.

By Dec. 31 of this year, you must also take your second required minimum withdrawal. Fortunately, to calculate that amount, you can use the new more taxpayer-friendly rules recently introduced by the IRS.

Keep in mind that the IRA minimum-withdrawal rules also apply to simplified employee pension, or SEP, accounts, because they're considered IRAs for this purpose. Roth IRAs, on the other hand, are exempt from the minimum-withdrawal rules as long as the original account owner is alive.