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For many people, retirement plan balances will provide most of the financial support to funds cash flow needs in retirement and through life expectancy; therefore it is important to properly plan for and be aware of retirement account distribution requirements. There comes a point in your life when it is mandatory that you begin taking distributions from your retirement accounts. That magic age is 70½, when something called "required minimum distribution" (RMD) kicks in. In the case of IRA holders, it applies even when the person is still working. Those who participate in tax-qualified retirement plans, such as 401(k) plans, but continue to work, are not subject to the minimum distribution requirements (unless they own 5% or more of the employer, in which case they must take distributions) until retirement.
Minimum Distribution Requirements
Generally, you are required to take minimum annual RMDs from most of your qualified plans, including your 401(k), no later than April 1 of the year following the year in which you reach age 70½. The RMD requirement does not apply to Roth IRAs. Distributions for the following years must be made by December 31st of each year. You can postpone RMDs from your current employer's qualified plans, (but not from your traditional IRA) if you are still working, until after you retire at whatever age that may be. This doesn't mean you have to take all the money out at once. The RMD for each year generally equals the retirement plan account balance as of December 31 of the previous year divided by your applicable life expectancy, as defined by IRS life expectancy tables.
NOTE: In any year you can take more than the required minimum distribution.
IMPORTANT NOTE: If you fail to begin taking minimum distributions, you will be subject to a 50% penalty on the difference between the minimum distribution that was required to be made and the actual distribution that was made, one of the steepest penalties imposed by the IRS. Therefore, remember to begin taking the minimum required distributions, or you could stand to lose quite a bit of money.
Securities and Investment Advisory Services are offered through LPL Financial, a Registered Investment Advisor, member FINRA/SIPC. Insurance products are offered through LPL Financial or its licensed affiliates. Heartland Planning Associates is a trade name of Heartland Bank. Heartland Bank and Heartland Planning Associates are not a registered broker/dealers and are not affiliated with LPL Financial. The investment products sold through LPL Financial are not insured Heartland Bank deposits and are not FDIC insured. These products are not obligations of Heartland Bank and are not endorsed, recommended or guaranteed by Heartland Bank or any other government agency. The value of the investment may fluctuate, the return on the investment is not guaranteed, and loss of principal is possible. The LPL Financial representatives associated with this website may discuss and/or transact securities business only with residents of the following state: Ohio. Check the background of investment professionals associated with this site on FINRA's BrokerCheck.
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