Required Minimum Distributions (RMD)
Retirement accounts are a wonderful savings vehicle. One often defers income into a retirement savings plan, thereby avoiding taxes and allowing investments to grow tax-deferred. Fast forward to your golden years and the Government wants their tax money, which you’ve deferred for a period of time. To ensure they receive their taxes, they do enforce required withdrawal amounts once you reach the “trigger age”. This age used to be age 70.5 years old, but is now set at age 72. One can expect to withdraw a certain amount of money each year from their retirement account, once they reach the trigger age (other exceptions apply; i.e., if you are still employed and working). This can be a shock to some, especially if the funds are not needed to live off of. The IRS publishes tables to guide you on calculating the required amount you must take each year. This applies to all of your IRA accounts, although you may elect to withdraw the total amount from one account if you wish. Please consult with your financial advisor and tax preparer for assistance with facilitating this calculation each year. It’s also important to note that if your beneficiary is more than 10-years your junior, a different table is used for calculation purposes. Lastly, IRA withdrawals are taxed at your ordinary income tax rate, not at the capital gains tax rate as these funds generally have never been taxed.
The information contained herein is based on our understanding of current tax law. The tax and legislative information may be subject to change and different interpretations. We recommend that you seek professional legal advice for applicability to your personal situation. As required by the IRS, you are advised that any discussion of tax issues in this material is not intended or written to be used, and cannot be used, (a) to avoid penalties imposed under the Internal Revenue Code or (b) to promote, market or recommend to another party any transaction or matter addressed herein.
