| Remember the first day you put money into your | | | | year, it falls back to a calendar year schedule and |
| retirement account? You have seen your retirement | | | | must be withdrawn by December 31. |
| account grow over the years and you have been | | | | |
| blessed because you have never had to tap into it. | | | | RMD Example |
| Now the grandkids are your new focus and you have | | | | |
| decided to just pass it on them since you will never | | | | Somebody born on July 1, 1938 would not turn 70.5 until |
| need it. You have just turned 70 and a friend of yours | | | | January 1, 2009. That means that they would not have |
| in a similar situation is griping because they had to pay | | | | to take their first RMD until April 1, 2010 (which would |
| taxes on their retirement plan because they had to | | | | satisfy 2009 RMD requirement). They would, however, |
| take money out. Puzzled on the IRS rules you do | | | | be required to take another distribution that year by |
| some research (or go to my blog) and you learn about | | | | December 31, 2010 to satisfy for that year. Each year |
| Required Minimum Distributions. We’ll call them | | | | following would follow the December 31st deadline. |
| RMD’s for short. | | | | |
| | | | | How much do you have to take for RMD's annually? |
| Required Minimum Distributions: Pay or Else | | | | |
| | | | | The amount will also be based on the previous |
| The beauty of investing in retirement plans is the tax | | | | year’s balance in your retirement plan. For example, |
| deferred growth. All these years you’ve seen your | | | | to figure your RMD for 2008 you would take the value |
| account grow but never had a 1099 you had to report | | | | of your plan as of December 31, 2007. |
| any of those gains on. You planned well enough were | | | | |
| you have prolonged withdrawing even longer now, but | | | | The amounts to be withdrawn are based of life |
| you can only hold out for so long. The IRS is chomping | | | | expectancy tables issued by the IRS which factor in |
| at the bit waiting to get some of that tax money back. | | | | your age, your beneficiary’s age, and your |
| They do so with RMD’s by making you take out a | | | | relationship with your beneficiary. Based on the 2008 |
| portion of your retirement account each year and pay | | | | Uniform Life Expectancy Table, you can expect to be |
| the respective tax on it. If you don’t take it out, you | | | | required to withdraw 3.65% of your retirement plan |
| get taxed 50% of the amount that you should have | | | | when you turn 70.5. It then increases to 3.77% the next |
| taken. That’s a pretty stiff penalty that you want to | | | | year and increases each year ongoing. The IRS tables |
| avoid. | | | | are named: |
| | | | | - Single Life Expectancy |
| When do RMD's have to start? | | | | - Joint Life and Last Survivor Expectancy |
| | | | | - Uniform Lifetime |
| The IRS says you must start by April 1 following the | | | | |
| year that you turn 70 and a half, and you must do it | | | | The tables are helpful, but nowadays calculators are |
| each year ongoing. Some retirement plans will allow | | | | used to compute the amount with ease. Please seek |
| you to postpone withdrawing so long as you are still | | | | guidance from a financial professional to ensure that |
| employed by that company. Keep in mind that April 1 is | | | | you are taking your RMD’s correctly. |
| for the first year and the first year only. After the first | | | | |