After decades of planning and saving, the day will come that it is time to begin Required Minimum Distributions from your retirement account. Here’s what you need to know as you get ready to retire.
RMDs begin at age 72. Once you reach age 72, you will be required to take distributions from your retirement account. It is important to discuss this issue with your financial planner before taking your first distribution. The rules can be complicated, and in some cases retirement plan participants have been accidentally backed into a corner by certain rules which triggered two RMDs the first year. The result was a surprising amount of income taxes, which you probably want to avoid.
RMDs aren’t always required. If you’re still working at age 72, you don’t have to take a RMD from your employer-owned plan, provided that you don’t own more than 5 percent of the company. This rule allows those who wish to keep working and saving for retirement to do so.
Age restrictions on IRAs have changed. Prior to the SECURE Act, which passed in late 2019, no one could contribute to their IRA after age 70 ½. That was a difficult restriction for those still working past age 70, who wanted to continue planning for an eventual retirement. But now, those still generating income past age 70 ½ can contribute to an IRA.
What happens if you don’t take your RMD. They wouldn’t call them “Required” Minimum Distributions if they were optional! If you don’t take your RMDs on time, or in the correct amount, you can be charged a penalty by the IRS.
Roth IRAs don’t have RMDs. You aren’t required to take RMDs from a Roth IRA, but that also means any distributions that you do take will not count toward your RMD from other accounts. Those still require a RMD.
What to do if you don’t need your RMD. Some account holders balk at the idea of required minimum distributions, because they don’t need the money for living expenses and would rather leave it in the account. We do have options, if you’d rather re-invest that money somewhere else. Just give us a call to schedule an appointment, and we can help you decide when to take your RMDs, how much to take, and how to invest the money elsewhere if that is your preference.