Investment Updates
Managing Mandatory IRA Distributions
Published Friday, March 13, 2009 at: 7:00 AM EDT
Individual retirement accounts and defined-contribution plans such as 401(k)s let you accumulate funds without paying taxes, but only up to a point. After you turn 70½, you must start withdrawals and pay taxes on the distributions. Fail to make required withdrawals, or take too little, and you’ll be hit with steep penalties.
There’s not much you can do to avoid paying the tax man, of course, and that’s the goal of required minimum distributions, or RMDs—to generate taxable income. But the requirements are complex, and beyond making sure to follow the rules, you could consider strategies that may help postpone or reduce your liability.
The Internal Revenue Service requires you to begin RMDs from tax-deferred accounts by April 1 of the year after you turn 70½. That first distribution actually covers the previous year, and you must make a second withdrawal by December 31. You’ll owe an “excess accumulation tax” of 50% on any part of your RMD you don’t withdraw.
© 2024 Advisor Products Inc. All Rights Reserved.
More articles
- Five Retirement Tips For Every Business Owner
- How To Avoid Becoming A Victim Of Identity Theft
- Annuities Provide Stability, But You Pay A Price For It
- Low Rates Give Estate Planning A Boost
- Does Your 529 College Savings Plan Match Up?
- Now's A Time To Recall Financial Planning Basics
- Tax Pros And Cons Of Municipal Bonds
- 412(i) Plan Is Complex But A Boon In Some Situations
- Ever Think About Investing In A Vineyard?
- Is The 4% Solution Right For Your Retirement Plan?
- Succession Planning For Solo Businesses
- Understanding The Myths Surrounding Your Estate
- Leave A Legacy To Future Generations-On Video
- How Can Wealthy Parents Avoid Spoiling Their Kids?
- Preparing For A Takeover Of Your Family Business