Ellsworth & Associates CPAs - Accountants in Cincinnati
  • About
  • Services
    • Tax Preparation
    • Financial Planning
    • Accounting
    • Outsourced Accounting
    • Business Consulting
  • Individuals
    • Individuals
    • Real Estate Investors
    • Clergy
    • Business Owners
    • Professionals
  • Businesses
    • Small Businesses
    • Mid-Size Businesses
    • Real Estate Investors
  • Organizations
    • Churches
    • Non-Profits
  • Resources
    • Pay Your Bill
    • Tax Resources
    • E-File
    • Real Estate Resources
  • Contact
    • Contact Us
    • FAQ
    • Review Us
  • Login

When Do You Have to Withdraw from Retirement Accounts?

12/1/2017

0 Comments

 
When Do You Have to Withdraw from Retirement Accounts?

How the Required Minimum Distribution Works

​We're always being reminded to save for retirement in tax-advantaged accounts like 401(k)s or IRAs. But did you know the government does an about-face and forces us to take money out of those accounts once we reach retirement? It's called the required minimum distribution (RMD) rule. Here are some tips you should know about RMDs well before you reach retirement age:
​
  1. RMD penalties are high. RMD rules require you to withdraw a certain amount of money every year from tax-deferred retirement plans like 401(k)s and traditional IRAs after you reach age 70½. Whether you want to or not. These withdrawals are then taxed as ordinary income. If you don't follow the rules, the IRS can assess a penalty equal to 50 percent of the amount that should have been withdrawn, on top of the regular tax due.
  2. Start thinking about RMDs early. One of the biggest mistakes retirees make is waiting until age 70½ to start thinking about RMDs. Remember, you can start withdrawing funds without penalty after you reach age 59½. If you start planning a tax-efficient withdrawal strategy before RMD rules kick in, you can manage what tax rate will be applied to your retirement distributions. With careful planning, smart taxpayers can easily reduce the federal tax rate they pay on their retirement distributions by 5 percent or more.
  3. The ½ year start date is confusing. You don't have to start taking RMDs until April 1 of the year after you turn 70½. For example, if you turned 70½ on July 15, 2017, you wouldn't have to take your first RMD until April 1, 2018. However, after that first year, RMDs will be due by Dec. 31 on every year afterward (including on Dec. 31, 2018 in this example).
  4. RMD amounts are based on complex tables. How much you're required to withdraw is based in part on the average life expectancy of someone your age. A calculation based on complex IRS life expectancy tables, plus your retirement account balance in the prior tax year, is used to determine your RMD. The good news is that the financial institution handling your retirement account will usually do the calculation for you.
  5. There are exceptions to distributions if you still work. If you reach 70½ and you’re still working for an employer providing you with a 401(k), you usually don't have to take an RMD from that account as long as you don't own 5 percent or more of the company. However, you still must take RMDs from other plans where you have assets.
  6. Not all accounts require distributions. Remember, not all retirement accounts require you to take an RMD. Roth accounts, for example, avoid RMDs and give you some extra flexibility to manage your other taxable withdrawals during retirement.
​
RMD rules can be confusing, and are a good example of why tax planning is such an important component of a retirement strategy. Please call if you have questions about any tax obligations related to your retirement accounts.
0 Comments



Leave a Reply.

    Archives

    February 2018
    January 2018
    December 2017
    November 2017
    October 2017
    September 2017
    August 2017
    July 2017
    June 2017
    May 2017
    April 2017
    March 2017
    February 2017
    January 2017
    December 2016
    November 2016

    Categories

    All
    Business
    Capital Gains
    Deductions
    Donations
    Healthcare
    Investing
    IRS
    Life Changes
    Non Profit
    Personal Finance
    Real Estate
    Retirement
    Security
    Self Employed
    Social Security
    Taxes

    RSS Feed

Ellsworth & Associates, Inc. CPAs
513.272.8400
Cincinnati: 9624 Cincinnati Columbus Road, Suite 209, Cincinnati, OH 45241

Terms of Use
Privacy Policy
FAQ
© 2017 Ellsworth & Associates, Inc.
  • About
  • Services
    • Tax Preparation
    • Financial Planning
    • Accounting
    • Outsourced Accounting
    • Business Consulting
  • Individuals
    • Individuals
    • Real Estate Investors
    • Clergy
    • Business Owners
    • Professionals
  • Businesses
    • Small Businesses
    • Mid-Size Businesses
    • Real Estate Investors
  • Organizations
    • Churches
    • Non-Profits
  • Resources
    • Pay Your Bill
    • Tax Resources
    • E-File
    • Real Estate Resources
  • Contact
    • Contact Us
    • FAQ
    • Review Us
  • Login