BOSTON (CBS) – Congress and the IRS decided that you cannot leave your pre-tax retirement savings growing forever tax-deferred, so they chose 70½ for you to begin mandatory withdrawals. Why 70½ still mystifies me!

These savings include your 401(k), 403(b), IRAs, SEP-IRAs, SIMPLE IRAs, Keogh plans and employee stock ownership plans known as ESOPs.

Your distributions must begin by your required beginning date (RBD), which is April 1 following the year that you reach age 70½.  According to the IRS, even if you have been receiving distributions before you reach age 70½, you must begin calculating and receiving required minimum distributions, RMDs, by your required beginning date.

The mandatory amount you will need to withdraw though is really not very much. If you have a $100,000 in your IRA, your first year’s required distribution will be under $4,000 ($3,650). It’s also a good idea to have taxes withheld for you so you don’t have to worry about paying estimated taxes.

The IRS requires that retirement plan owners be notified if they are subject to required minimum distributions and the custodians of your account will calculate the amount you need to withdraw.

The required minimum distribution is a simple formula but you need to include all of the dollars you have in all your retirement accounts. Therefore, if you have 10 IRA accounts you could get 10 letters. So consolidating all of your accounts before age 70 is good planning.

It is key you begin to take the required minimum distributions from your retirement plans. There is a penalty if you do not. The penalty is 50% of the amount you should have withdrawn.

If you have a Roth IRA you do not need to begin the required minimum distributions from your account at age 70½.

You can name a beneficiary and they will receive the dollars in the account upon your death and the bonus is your heirs will not owe income taxes on the dollars they receive.

One more thing:  IRS worksheet for required minimum distributions.


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