New RMD rules require withdrawing funds from your IRA and 401(k) at 72. If you don’t take the required minimum distribution, you could face a tax penalty.
When you reach age 72, you may be required to take distributions from your IRAs and other retirement accounts
Withdrawal requirements will vary from person to person because they depend on several factors
Failure to take required minimum distributions may result in a stiff penalty
After decades of socking away money in retirement funds, baby boomers have started to hit the required minimum distribution (RMD) age threshold of 72. Once you reach this age, the government requires that you start drawing down the assets in certain types of retirement accounts via RMD, or else face a stiff penalty. Here are the things you should know about RMD rules.
Taking an RMD isn’t a complicated transaction, but there are details you’ll need to manage to avoid penalties.
If you don’t take the correct amount or don’t take RMDs at all, for instance, you could end up paying hefty tax penalties. Keep in mind that RMDs count as taxable income, which means you may owe a portion to Uncle Sam come tax time.
Also, make sure your retirement account beneficiary designations are up to date. Having outdated beneficiary designations, or not having any, means your assets may not be distributed according to your wishes.
Unlike a traditional IRA, which is tax deferred until withdrawn, a Roth IRA is taxed up front but is tax free when you take it as a distribution. Again, with a Roth there is no RMD during the owner’s lifetime. However, Roth 401(k) plans have RMD rules and requirements. Contact your plan administrator on the company 401(k) plan to learn how it processes 401(k) RMDs. But a word of caution: If you’re taking an IRA RMD and considering converting your traditional IRA to a Roth IRA this year, you must first satisfy this year’s RMD. In other words, you’re not allowed to convert RMD money.
If you have any questions about RMDs or Roth conversions, consult with your financial professional to make sure you understand all the withdrawal rules.
TD Ameritrade does not provide tax advice. We suggest you consult with a tax-planning professional with regard to your personal circumstances.
*An investor should consider a 529 Plan’s investment objectives, risks, charges, and expenses before investing. A Program Disclosure Statement that contains this and more information should be read carefully before investing.
Investors should consider before investing whether their or their beneficiary’s home state offers any state tax or other state benefits such as financial aid, scholarship funds, or protection from creditors that are only available for investments in such state’s qualified tuition program, and should consult their tax advisor, attorney, and/or other advisor regarding their specific legal, investment, or tax situation. All investments involve risk including the loss of principal.
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