All Investors Have An RMD
Do You Know Your RMD?
Even though RMD may sound like some medicine you are supposed to take, it’s not. Your RMD is your required minimum distribution. If you are age 70 1/2 or older the government “requires” you to withdraw a minimum amount of money from your retirement accounts every year.
This includes your 401k and 403b accounts as well as your traditional Individual Retirement Account. You are not required to take a required minimum distribution from a Roth Individual Retirement Account, only a traditional.
Are Taxes Due?
Yes you will be taxed on the amount of your distribution. The money in these retirement accounts have never been taxed. Your money accumulated faster in these accounts while they were in tax-deferred mode. When you retire the government wants their money.
Investors Beware
Failure To Take Your Distribution
If you do not meet one of the exceptions and fail to take your required minimum distribution by December 31st of each year you will pay.The IRS imposes a stiff penalty of 50%.
The fifty percent penalty is charged against the amount of money that you were required to take but did not take out of your retirement accounts. For example if you are required to withdraw $5000 and fail to do so, the IRS will charge you $2500.
That is a lot of money go to waste just for sloppy bookkeeping on your part. Call your accountant immediately if you are in any way confused about where you stand with your RMD.
The IRS Takes Rules Very Seriously
How Do You Determine Your Amount?
The IRS is unforgiving. They will not give you a pass if you come up with an incorrect distribution amount. To be the most accurate you are better off using a retirement calculator or a retirement minimum distribution calculator to determine how much your minimum distribution should be.
If you are unsure about how to use these calculators you can have a financial professional determine your distribution amount for you.
Rules Are Important
Exceptions To The Rule
- You have until April 1st following the date you turn 70 1/2 to take your first distribution. For example if your birthday is in May you turn 70 1/2 in November. You do not have to take a distribution that December, you have until April 1st of the next year to take your first distribution.
- If you are still working at age 70 1/2 you can delay your first distribution from your employer’s retirement plan. You can delay this first payment until April 1st of the year following the year you retire.
Finalizing Retirement
When you start your RMD your retirement is final. Be sure to be very accurate with your required minimum distribution. You did a great job saving for retirement now do a great job at distributing your retirement investments.
