You spent decades saving for retirement. A long time ago, you understood and took to heart the advice about the importance of your retirement savings. You’ve just turned 70, and you’re proud of your financial achievements.
You worked hard; you sacrificed, and now you’re retired and doing well enough so that you don’t have to take money from your retirement savings. After all, you’re still healthy and strong, and you’d prefer to let your retirement investments grow even more. And, besides, you don’t really need it right now.
The truth is, federal rules require you to begin making regular withdrawals from certain retirement savings accounts once you reach 70½. It’s called the Required Minimum Distribution, and it’s the minimum you have to withdraw per year. In other words, you don’t have a choice.
The RMD rule applies to certain plans.
Once you reach 70½, you have to start making withdrawals from IRAs, SIMPLE IRAs, SEP IRAs, and other retirement accounts. Roth IRAs are exempt from the requirement until the account owner dies.
Here are two important provisions:
- You may withdraw more than the minimum required amount.
- Withdrawals are considered taxable income; exceptions include money that was previously taxed or is considered tax free, such as distributions from certain Roth accounts.
Calculating the RMD.
The IRS provides worksheets that can help you calculate your RMD. Mach 1 Financial Group does recommend speaking with a licensed tax professional to ensure accuracy. For more information, go to https://www.irs.gov/retirement-plans/plan-participant-employee/required-minimum-distribution-worksheets.
The link directs you to select between two options:
- A worksheet to calculate your withdrawal if your spouse is more than 10 years younger than you.
- A worksheet for everyone else.
Date to receive RMD.
The date to receive your first distribution varies depending on the type of retirement account.
For IRAs (including SEP and SIMPLE IRAs), it’s April 1 of the year following the year when you reached 70½. So, if you reach 70½ in 2019, you have until April 1, 2020.
For 401(k), profit-sharing, 403(b), and other defined contribution plans, it’s the same as mentioned above or when you retire, whichever is later.
Dates to receive successive RMDs.
You must make account withdrawals every year by December 31. The calendar year after you reach 70½ you’ll have to make two withdrawals. One on April 1 and another by December 31. To avoid having to pay taxes on both those payments, you may take the first withdrawal in the year you reach 70½ before December 31. That way the income falls into two separate tax years.
Penalties for waiting to take withdrawals.
If you don’t take withdrawals or don’t take adequate amounts, you may face 50% excise taxes on the amounts that are not distributed.
If you would like to discuss your retirement distribution options or other financial strategies, give us a call. We’re happy to talk.
Advisory services offered through Coppell Advisory Solutions, LLC dab Fusion Capital Management, which is registered as an investment advisor with the SEC and only transacts business in states where it is properly registered or is excluded or exempted from registration requirements. SEC registration does not constitute an endorsement of the firm by the Commission and does not imply that the advisor has achieved a particular level of skill or ability. All investment strategies have the potential for profit or loss. Third party ratings and recognitions are no guarantee of future investment success and do not ensure that a client or prospective client will experience a higher level of performance or results. These ratings should not be construed as an endorsement of the advisor by any client nor are they representative of any one client’s evaluation.