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Retirement funds: What
you need to know about required withdrawals
Do you own a traditional IRA, SEP-IRA, SIMPLE IRA, Keogh plan,
401(k) plan, or 403(b) plan? If so, you'll have to start
taking distributions when you reach age 70½. If you
don't, you'll forfeit 50% of the amount you should
have taken but did not.
For example, if your required minimum distribution (RMD) in
2007 was $10,000, but you only withdrew $4,000, your penalty
would be 50% of the $6,000 you did not withdraw, or $3,000.
The RMD rules apply to the plans mentioned above,
but not to Roth IRAs.
Here are the requirements.
 You
may take your first distribution any time before April 1 of
the year following the year in which you reached age 70½.
However, a first distribution taken after the year you turned
70½ still will be credited to the year you actually
reached the required age. You'll then have to take another
distribution by December 31 of the current year, forcing you
to pay income tax on two distributions in the same year.
You
must take each subsequent distribution by December 31 of the
applicable year. To avoid the 50% penalty, give your plan administrator
enough time to process the distribution and get it to you by
year-end.
The
amount of your RMD is computed using Uniform Lifetime Tables
issued by the IRS. These tables provide percentages that are
applied to the value of your retirement account as of December
31 of the year preceding your distribution. Beginning at age
70½, for example, most people must withdraw at least
3.6% of the value of their accounts. At age 75, the percentage
increases to 4.4%. If your spouse is ten or more years younger
than you, different rates will apply.
If
you're still employed at age 70½, you may be able
to delay withdrawing from your current employer's plan
until you actually retire.
 You
and your spouse may not take distributions from one another's
accounts to make up your RMDs. However, if you individually
own more than one IRA, you may compute a combined RMD and withdraw
it from one or any combination of the accounts. RMDs from non-IRA
plans, such as Keogh or 401(k) plans, must be computed for
and withdrawn from each separate account.
You
may take distributions in monthly, quarterly, semi-annual,
annual, or irregular increments, as long as you reach your
required total each year.
Since
RMDs are taxable, consider making quarterly income tax estimates
to cover your liability, or instruct your administrator to
withhold taxes from each distribution. Call us to set up a
time to develop further tax-saving strategies for handling
your retirement funds.
©copyright
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