Your 70s represent a time to enjoy the fruits of your labor, but there’s still work to do. Once you turn 72, you’ll need to start taking one of the more complex and time-consuming aspects of managing your retirement income: required minimum distributions (RMDs).
What are required minimum distributions?
A required minimum distribution is the minimum amount you must withdraw from your tax-advantaged retirement account(s) each year, including IRAs (traditional, SEP, and SIMPLE), 401(k)s, and 403(b)s when you reach age 72. You aren’t required to take RMDs from Roth IRAs during your lifetime.
When do you have to begin withdrawing money?
IRS regulations require you to begin withdrawing a minimum amount of money from your retirement account(s) each year by April 1 of the calendar year following the year you turn age 72. After that, RMDs must be taken each subsequent calendar year by December 31.
Why is this information important to you?
Calculating the correct RMD amount(s) across one or multiple retirement accounts is complicated. If you miscalculate or fail to take RMDs from one or more qualified plans, you can be vulnerable to hefty tax penalties.
What happens if I don’t take my RMD?
Failing to do so results in a hefty penalty—50% of the amount you should have withdrawn.
What if I don’t need my RMD?
One option is a Qualified Charitable Distribution (QCD). To avoid receiving your RMD as income, you can transfer up to $100,000 from your IRA to a qualified charity. This satisfies your RMD and prevents any unwanted additional income that would increase your tax burden. Importantly, a donation you make from income you’ve already received doesn’t qualify as a QCD.
If you have any questions about RMDs, or need assistance with year-end financial and tax planning, don’t hesitate to contact the office.