Personal Finance Essentials
Required Minimum Distributions
- Back to Retirement Planning
- The Key Challenge in Retirement Planning
- A Brief History of Retirement
- How Much You Need to Save
- The Cost of Waiting: Why Starting Early Matters
- Workplace Retirement Plans
- Individual Retirement Accounts
- Investing Your Retirement Savings
- Required Minimum Distributions
- Generating Income in Retirement
- Long-Term Care Planning
- Disability Insurance: Protecting Your Income
- Managing Retirement Accounts Through Life Changes
- College Savings and Retirement: Getting the Balance Right
- Estate Planning for Retirement Accounts
- Common Mistakes to Avoid
- Retirement as a Family Affair
- Planning the Life You Want in Retirement
The IRS Can Claim 90% of What You Were Supposed to Withdraw
Do You Know Your RMD Rules?
Tax law requires that once you reach a certain age, you must begin withdrawing money from your traditional retirement accounts. These withdrawals are called Required Minimum Distributions, or RMDs. The IRS determines the minimum amount you must withdraw each year based on your age and account balance.
The rules are complicated, and the penalties for violating them are severe.
The goal is to withdraw enough to meet your needs without depleting your accounts prematurely. A practical approach: reverse-engineer the process. Start with the total income you need each year. Subtract Social Security, pension income and any other sources. Withdraw only the remainder from your retirement accounts. This preserves your savings for as long as possible.
Roth IRAs are an exception – they have no required minimum distributions during the owner’s lifetime, which is one reason they are valuable for both income planning and estate planning.
