The good news is that you did a great job over the years securing a nice nest egg for your golden years. Now the bad news: You cannot keep retirement funds in your account indefinitely.
For the year you turn 70½ and each year thereafter, the IRS requires that you to begin taking withdrawals from most of your retirement accounts. It’s called a required minimum distribution, or RMD.
These rules apply to traditional individual retirement accounts, SEP IRAs, SIMPLE IRAs, 401(k) plans, 403(b) plans, 457(b) plans and profit-sharing plans.
The IRS RMD rules can be a bit confusing, and failing to satisfy your annual RMD can be expensive, costing you an excise-tax penalty of up to 50 percent on the amount not distributed as required, warns Manisha Thakor, director of Wealth Strategies for Women at Buckingham and The BAM Alliance, a community of more than 140 independent registered investment advisors throughout the country.
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As every individual’s situation is unique, Thakor recommends contacting a qualified tax advisor to ensure that you satisfy your annual RMD requirements.
Basically, the IRS requires that owners of tax-deferred retirement accounts begin withdrawing (and paying taxes on) minimum amounts each year upon attaining the age of 70½. Beneficiaries of inherited IRAs must usually begin taking RMDs in the year following the year of the account holder’s death.