Required Minimum Distribution BasicsSubmitted by Mission Financial Planning on September 27th, 2019
You graduated from dental school in your twenties and spent the next few decades growing your practice and investing in a retirement portfolio, knowing one day your hard earned money would support you through your retirement. You may not know when your official retirement will begin, but if you’re approaching your 70th birthday the time to start thinking about withdrawals is now.
Once you reach the age of 70.5, you are required by the federal government to withdraw a certain amount of money from your IRAs or 401(k)s every year--this amount is your Required Minimum Distribution or RMD.
The amount you must withdraw depends on a number of factors, but to explain it simply:
IRA balance ÷ your statistical life expectancy = RMD for that year.
Since this number is based on life expectancy and account balances, your RMD changes from year to year.
Miss or take less than the minimum RMD and you can be subject to an IRS fine of 50% of the amount not withdrawn.
Why the hefty fine? The contributions weren’t taxed going in and have grown tax deferred, all for the purpose of incentivizing saving for retirement. At age 70.5 it’s time to “pay the piper” through the income taxes that are levied on the withdrawals.
Additional rules apply to RMDs regarding timing, aggregating IRAs, charitable contributions from IRAs, and beneficiary IRAs. If you have questions about your RMDs book an exploratory call with Sharon today so you can enjoy your retirement tomorrow.