After saving for retirement for years, when you turn 70 ½ years old, the Internal Revenue Service requires that people start taking their RMD (required minimum distribution) out of their retirement accounts which could be an IRA or 401(k). If you fail to take an RMD you may face a steep penalty. For the complete NYT article, follow our link. Read More.
Of a Certain Age? You May Need to Withdraw Money From a Retirement Account
By Ann Carrns | The New York Times
You may be thinking about holiday gifts and New Year’s resolutions. But if you’re old enough and you’ve been saving for retirement, it’s also time to confirm that you’ve withdrawn money from certain accounts, as required by the Internal Revenue Service.
That’s right: After encouraging you to stash money away for years, the government mandates that people start taking out cash at age 70½ — gradually. (The requirement allows the government to finally tax the money, which had been growing tax deferred to encourage saving for retirement.)
Each year, by Dec. 31, account holders must withdraw a certain amount of cash, known in financial lingo as an R.M.D., for required minimum distribution. The amount is based on a formula that factors in the account balance and the holder’s life expectancy.
In general, the rule applies to traditional individual retirement accounts and most other I.R.A.s, as well as employer-based retirement accounts like 401(k)’s — although, as with anything I.R.S.-related, there are lots of asterisks. Roth I.R.A.s, for example, aren’t subject to R.M.D.s (unless you inherit one), because contributions are made with after-tax money.
The I.R.S. allows extra time for savers to take their first distribution. So people turning 70½ in 2018 can wait until April 1, 2019. But they must still take a second distribution, by Dec. 31 of next year, for 2019 — and take R.M.D.s annually after that, said Molly Stanifer, a financial adviser at Old Peak Finance in Chapel Hill, N.C.
It can sound confusing, but it pays to get it right, said Kacie Swartz, senior financial adviser at Stone Asset Management in Austin, Tex. Investors who fail to take an R.M.D. may face a steep penalty, equal to half the amount they didn’t withdraw. So if you were required to take out $10,000 but withdrew nothing, you could owe a penalty of $5,000. Continue Reading