AS YOU APPROACH THREE SCORE YEARS AND TEN, DON’T FORGET ABOUT REQUIRED MINIMUM DISTRIBUTIONS.
Upon the occasion of his 70th birthday party, Mark Twain (a.k.a. Samuel Clemens) commented, “We have no permanent habits until we are forty. Then they begin to harden, presently they petrify…”
Whether Twain was right or not, the federal government demands most IRA owners develop a new habit at age 70. They must begin taking required minimum distributions, or RMDs, which are the minimum amount that must be withdrawn from most types of IRAs the year the owner reaches age 70½, and every year thereafter. Account owners can take more than the minimum, if they choose. Regardless of how much is distributed, the amount usually will be treated as ordinary income for tax purposes.
According to Kiplinger’s, “…you have until April 1 of the year after you turn age 70½ for the first withdrawal, then you must take required withdrawals by December 31 every year after that.”
The exception to the rule is the Roth IRA. RMDs are not required with Roth IRAs; however, designated Roth accounts, which hold Roth contributions made to 401(k), 403(b), and 457(b) plans, are subject to RMDs.
It’s important to calculate RMDs carefully. There are several variables to consider, including the age of your beneficiaries. The consequences of a miscalculation can be expensive. Failing to take an RMD, or taking too small an RMD, can result in a 50 percent penalty tax.
If you would like assistance determining the amount of your RMD, please contact your financial professional.
Weekly Focus – Think About It
“Let us never forget that government is ourselves and not an alien power over us. The ultimate rulers of our democracy are not a President and senators and congressmen and government officials, but the voters of this country.”
–Franklin D. Roosevelt, U.S. President