What You Need To Know About Required Minimum Distributions From 401ks Episode 76

Do You Have An IRA or 401k?

We always get questions about Required Minimum Distributions (RMDs) especially as we get close to the end of the year. So, let’s take a look at what you need to know.

Please remember, before making any tax decisions, it may be appropriate to speak with a qualified tax preparer about your situation.

So, what is an RMD?

We make a deal with the government when we begin saving money in tax-deferred accounts like an IRA, 401k or 403b.

We agree that we won’t take our money out until we are at least 59.5 years old, and as a result, the IRS allows us to defer paying the taxes we owe on this money.

This helps us by lowering our taxes while we are working, but the IRS eventually wants their money. There is no legal way to avoid RMDs.

If you’re already taking money out of your tax-deferred accounts, you may already be satisfying your distribution requirement. However, it’s strongly advised to ask your tax advisor if you’ve met your requirement.

The IRS is serious about taking out the right amounts! If you fail to take the required amount, the IRS will penalize you by taking 50% of what you should have taken.

How do RMDs work?

After you reach the age of 70.5, for some people 72, you must begin taking money out of qualified retirement accounts. A law changed in early 2020 to make it 72 for everyone going forward. However, if you turned 70.5 in 2019 or before you fall under the old rule, and you should be taking RMDs each year.

The amount that you take out begins around 3.5% to 4% and it increases each year you live. Simply put, the IRS wants the opportunity to tax your money that has never been taxed.

If you have more than one qualified retirement account, you can satisfy the RMD from one account or you can split it up. You may take the required distribution from each qualified account.

Listen to learn more.

How to withdraw money from qualified accounts before 59.5

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