Minimum Distribution Requirements
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By :
Ed McDonald
Submitted
2009-12-08 14:24:17 |
When you turn age 70-1/2, IRS rules may require you to take required minimum distributions from your workplace retirement plans as well as traditional IRAs that you may have. Remember, the key rule here is the age and minimum distribution must begin once the account holder is age 70-1/2, regardless of whether you are retired or not.
Another key to remember is the type of retirement accounts that are subjected to required minimum distribution. The RMD rules apply to all employer sponsored retirement plans, including
profit-sharing plans, 401(k) plans, 403(b) plans, and 457(b) plans. The RMD rules also apply to traditional IRAs and IRA-based plans such as SEPs, SARSEPs, and SIMPLE IRAs. Recently some employers have started to offer Roth 401(k) account for employer sponsored retirement plans. The RMD rules also apply to Roth 401(k) accounts.
However, the RMD rules do not apply to Roth IRAs while the owner is alive.
If an account owner fails to withdraw a RMD, fails to withdraw the full amount of the RMD, or fails to withdraw the RMD by the applicable deadline, the amount not withdrawn is taxed at 50%.
RMD Timing
RMD must begin by April 1st of the year after you turn 70 ½. For example, if you reached 70-1/2 in May 2009, you would have to take your firstRMD by April 1st 2010. Once first RMD is taken, you must take each year's RMD by December 31.
Distribution Amoutn
How much money you withdraw each year depends on your age, your spouse's age and how much money you have left in your retirement plan(s). To calculate your required distributions, you can use of of three IRS-provided life expectancy tables. This information can be found in IRS publication 590, "Individual Retirement Arrangements,".
Do I Have to Pay Penalties
If in a perticular year, you fail to take RMD, take it too late or don't take enough, the IRS will impose a penalty equal to 50% of the distribution you should have taken.
Are There Any Exceptions
You don't have to take RMDs from a workplace plan while you are still working for the company that provides it - even if you're older than 70-1/2. This rule requires that you do not own more than 5% of the company. Also, Roth IRA accounts are excempt from Required Minimum Distribution.
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Author Resource:-
Ed McDonald has 10 years of diversified experience in financial planning, retirement planning, asset allocation strategies and private equity. His also writes as a freelander for different financial websites and newletters.
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Article From Fiscalwealth | Personal Finances, Investment and Wealth Management
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