Required Minimum Distribution

What does Required Minimum Distribution mean?

Beginning the calendar year after the year you turn 70 l/2,... why 70 l/2? Where did they come up with l/2 year? Pretty weird, if you ask me...

OK, after you turn 70 l/2 - you are required to withdraw a minimum amount of money from most tax deferred type accounts (IRA, 401K, Deferred Compensation, etc). See Penalty info at the bottom of this page!

You are eligible any time after age 59 l/2 to take withdrawals, and pay taxes... it's your money.

However, if you have money left in your accounts at 70 l/2, you are forced to take required minimum distributions. You can take more than the "forced" withdrawal amount (the minimum required amount) too... again, it's your money.

Working at age 70 - Exception #1

If you continue past age 70 l/2, you may be exempt from being forced into required mimimum distributions (after all, you are earning working income AND likely drawing Social Security too). This exemption is good until April 1 of the calendar year after the year in which you retire. Do check with your EMPLOYER to be sure this exemption applies to you.

Roth IRAs are Exception #2

The beauty of ROTH IRA's is that you don't pay taxes on the earnings AND you are not required to take the distributions at 70 l/2.

Also, if you continue to work beyond age 70½, you may be able to defer taking distributions from your current employer’s Keogh, 401(k), 403(b), or other employer–sponsored retirement plan until April 1 of the calendar year after the year in which you retire.

Tax Penalties

Failure to do so results in a 50% penalty of the amount that should have been distributed.

Example: If you were required to take $10,000 - and you took nothing: You owe half of that required amount - $5,000 for tax penalty.


From the IRS website:
"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fails to withdraw the full amount of the RMD, or fails to withdraw the RMD by the applicable deadline, the amount not withdrawn is taxed at 50%. The account owner should file Form 5329, Additional Taxes on Qualified Plans (Including IRAs) and Other Tax-Favored Accounts, with his or her federal tax return for the year in which the full amount of the RMD was not taken."

This penalty was waived in 2009, as folks didn't have to take withdrawals.... your tax consultant will advise on your distributions for future years if anything changes.

More Financial Advice on Retirement here!