If you are turning age 70 ½ in 2013, you will have a new phrase to understand and how it affects you. That phrase is the Required Minimum Distribution that affects your qualified investment accounts. The Required minimum distributions are the amounts that you must withdraw each year from your traditional IRA, employer-sponsored retirement plan, or tax-sheltered annuity. You must begin to take the annual distributions by April 1 of the year following the year in which you reach age 70½. This is known as your required beginning date. If you work for your employer past age 70½ and are still participating in the employer’s retirement plan, you may postpone your first distribution from that plan until April 1 of the year following the year of your retirement (as long as you are not more than a 5 percent owner of the employer).
Regardless of your required beginning date, you must take subsequent distributions by December 31 of each calendar year. You’ll continue to take the annual distributions each year until your death or until your account balance is reduced to zero. You can always withdraw more than the required minimum amount in any given year. However, if you withdraw less, you will be subject to a 50 percent federal penalty on the difference between the amount you should have taken and what you actually took.
The basic calculation for individual accounts provides that the required minimum distribution is determined by dividing the account balance by the distribution period. For lifetime required minimum distributions, there is a uniform distribution period for almost all individuals of the same age. The uniform lifetime distribution period table is based on the joint life and last survivor life expectancy of you and a hypothetical beneficiary 10 years younger. However, if your sole beneficiary is your spouse and he or she is more than 10 years younger than you, a longer distribution period measured by the joint life and last survivor life expectancy of you and your spouse is permitted to be used.
However, the specific rules on required minimum distribution calculations are complicated, and you should consult a tax professional regarding your situation.
So make sure you have your financial affairs in order and a good way to start this process would be to contact me by e-mail at firstname.lastname@example.org or call me toll free at (888) 914-9909. I would be more than happy to review your financial situation with you to make sure your financial house is in order, and thank you for joining me this week for your retirement minute.
Until next week!
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About the Author
John Bearss (Retirement Specialist)
John R. Bearss is a retirement specialist. He has been successfully helping clients nearing retirement generate lifetime income streams for 25 years. He can be reached by phone at (888) 914-9909.
Disclaimer: Investing involves risk. Always do your own due diligence and consult a trusted financial professional before making any investing or financial decisions. John Bearss is a retirement specialist. He is also a registered representative of and offers securities through SICOR Securities, Inc., Member FINRA, MSRB, SIPC, 6500 Poe Avenue, Suite 105, Dayton, OH 45414 | (937) 890.3101. Neither SICOR Securities, Inc., Lifetime Decisions Management nor their representatives provide legal or tax advice. Please consult your CPA or qualified tax advisor before making any decisions. Lifetime Decisions Management, Inc. and SICOR Securities, Inc. are not affiliated.