If you've already entered retirement, you now have to begin to take money out. Not only do you have to comply with IRS rules on Required Minimum Distributions (RMDs), but you need a plan so your money will last as long as possible.
Also, consider making a list of your accounts, financial institutions, and associated contact information. Let trusted family members or your legal representation know the location of your accounts list. I have seen instances where retired clients have needed assistance to make sure they have taken their RMD, and this list would be a helpful resource. It should be updated as any changes occur.
After all the advice you've received about saving for retirement, taking money out of your traditional IRAs and other qualified retirement plans may feel strange. Yet once you reach 70½, the required minimum distribution (RMD) rules say you have to do just that.
Under these rules, you must withdraw at least a minimum amount from your retirement plans each year. Since the withdrawals are considered ordinary income, planning in advance can help you prepare for the impact on your tax return. Here some planning tips:
Make a list of your accounts. The rules require an RMD calculation for each plan. With traditional IRAs, including SEP and SIMPLE plans, you can take the total distribution from one or more accounts, in any amount you choose. You can also take more than the minimum. However, withdrawals from different types of retirement plans can't be combined. Say for instance, you have one 401(k) and one IRA. You have to figure the RMD for each and take separate distributions. Why is that important? Failing to take distributions, or taking less than is required, could result in a penalty of 50 percent of the shortfall.
Plan your required beginning date. In general, you're required to withdraw RMDs by December 31st, starting in the year you turn 70½. The rules provide one exception: You have the option of postponing your first withdrawal until April 1 of the following year.
Consider the ramifications of delaying your income. Delaying income can be a sound tax move. But because you'll still have to take your second distribution by December 31, you'll receive two distributions in the same year, which can increase your taxes.
Give us a call if you have questions about your RMDs and how they'll affect your taxes. We can help you create a sound distribution plan.