Do you know what RMDs are?
July 10 2018
Tax-advantaged retirement accounts can help you build wealth and prepare for a comfortable retirement. However, you won't be able to accumulate cash in these special savings vehicles forever. Owners of certain types of accounts will have to eventually start withdrawing their money in the form of required minimum distributions, or RMDs.
70 ½: The Number to Know
The IRS deems you 70 ½ exactly six months after your 70th birthday. Once you reach this age, you have until April 1 of the following year to take a required minimum distribution from most IRAs and defined contribution plans like 401(k)s. Once you begin taking RMDs, you must continue taking them every year, though you have until the last day of each calendar year (Dec. 31) to make the withdrawal.
Take the Distribution (or Pay a Fine)
Until this point the government has provided a tax break on these accounts, either as an income tax deduction or by giving you the opportunity to claim growth tax-free. Once you reach the designated age, though, if you fail to take an RMD or withdraw too few funds, the IRS will apply a 50 percent penalty to the amount that should have been removed.
Leaving a Legacy
Spouses who are the sole designated beneficiary of an IRA have the option to treat that IRA as their own, but non-spouse beneficiaries (including children) must consult actuarial life tables or withdraw the entire balance after five years following the original owner's passing.
Have questions about RMD rules and how they may apply to your retirement accounts? Reach out for assistance.
"Rule No. 1 : Never lose money. Rule No. 2 : Never forget Rule No. 1." Warren Buffett