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Take Your Required Minimum Distributions
Posted By Tara Finnegan Coates On February 18, 2013 @ 8:55 am In Money Talk | Comments Disabled
The following is a guest post by Jim Young.
If you’re already 70 1/2, the term Required Minimum Distribution  (RMD) is likely part of your vocabulary. If not, it needs to be – and soon.
When you reach this magic number, you are required by tax law to withdraw each year a portion of the funds in most types of retirement accounts – traditional IRAs, SEP and SIMPLE IRAs, 401(k)s , 403(b)s, 457b(s) and profit sharing plans (the rules don’t apply to Roth IRAs if the owner is still alive).
If you have all of your retirement funds in one account, the bank, broker, etc. will determine the amount you must withdraw in any given year. If you have several retirement  accounts managed by more than one institution you must either determine the amount to be taken from each, or you can determine the total distribution from them all and withdraw the RMD from any one (two or three) of them.
It’s not required that you withdraw some funds from each retirement account each year. The requirement is simply that the combined total RMD be withdrawn annually from one or more of your accounts.
A word of caution - if you decide to withdraw your RMD from the same account year after year you could run afoul of inactive account statutes in your state. Depending on the laws of the state where your funds are held, the institution where your money  is located may be required to report and ultimately remit the balance in your account to that state. Avoid this by withdrawing funds from each account at least every year or two, even if it’s just a nominal amount and you continue to withdraw the majority of your RMD from one preferred account.
If you turn 70 1/2 in 2013, there is a way to avoid taking an RMD this year, but it requires you to withdraw two RMDs in 2014. That decision will increase your income for that year and could potentially put you in a higher tax bracket. Get some advice before you postpone taking that first RMD.
Jim Young has volunteered with AARP Foundation Tax-Aide since 2002 in Henrico, Va., after retiring from a career in financial management. He is an Enrolled Agent (a person certified by the IRS as qualified to represent taxpayers in dealings with the agency) and is a member of the National Association of Enrolled Agents. AARP Foundation  provides tax counseling as a public service through the AARP Foundation Tax-Aide Program. The information provided is for educational purposes only and may not apply to your tax situation. Your taxes are your responsibility.
Photo courtesy of kayepants  via Flick Creative Commons.
Article printed from AARP: http://blog.aarp.org
URL to article: http://blog.aarp.org/2013/02/18/take-your-required-minimum-distributions/
URLs in this post:
 Image: http://blog.aarp.org/wp-content/uploads/2013/02/Blog-pic-retirement-brochure-kayepants.jpg
 Required Minimum Distribution: http://www.aarp.org/work/retirement-planning/info-10-2011/your-required-minimum-distribution-rmd.html
 401(k)s: http://www.aarp.org/money/budgeting-saving/info-08-2012/beyond-the-401k.html
 See also: Find an AARP Foundation Tax-Aide location near you.: http://www.aarp.org/applications/VMISLocator/searchTaxAideLocations.action
 retirement: http://www.aarp.org/work/retirement-planning/
 money: http://www.aarp.org/money/investing/
 Image: http://blog.aarp.org/wp-content/uploads/2013/02/jimyoung.jpg
 AARP Foundation: http://www.aarp.org/aarp-foundation/
 kayepants: http://www.flickr.com/photos/kayepants/
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