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Are
you getting close to retirement? If so,
you know that one of your biggest
challenges will be to manage your cash
flow in a way that allows you to enjoy
the lifestyle you have envisioned. One
key part of that cash flow can be the
distributions from your IRA and your
401(k) or other employer-sponsored
retirement plan. That is why it is
essential you take these distributions
at the right time and in the right
amounts.
The rules governing
withdrawals from traditional IRAs and
401(k) plans fall under the Internal
Revenue Service's required minimum
distributions (RMD) guidelines. (You are
not required to take these distributions
from a Roth IRA.) Here are some of the
key RMD points to keep in mind:
-
Take distributions by age 70 1/2.
You should begin taking RMDs in the
year in which you turn 70 1/2. If
you do not take your first RMD
during that year, you must take it
no later than April 1 of the
following year. If you do put it off
until April 1, you must take two
distributions in one year. If you do
not take your RMDs on time, you may
have to pay the IRS a 50 percent
penalty tax on the taxable portion
of your uncollected distribution.
Make sure you know your dates.
-
You can take more than the minimum.
You can withdraw more than the RMD,
but, as the word required says, you
cannot withdraw less.
-
You may be able to delay RMDs if you
are still working. If your
employer's retirement plan permits
it, you may not have to take RMDs
from the plan if you are still
working and you are 70 1/2 or older.
However, this exception will not
apply if you own 5 percent or more
of your company.
To determine your RMD,
you'll need to use either the Uniform
Lifetime Table, which is based on your
life expectancy, or the Joint Life
Table, if you have a spouse who is the
sole beneficiary and who is more than
ten years younger. Your tax advisor can
help you make this selection.
How will you know the level
of retirement plan distributions you
should take? First, of course, you need
to know, with a fair degree of
certainty, how much money you will need
each month. Then consider these factors:
-
Social Security. The more Social
Security you receive, the lower the
distributions you may have to take
from your retirement plans.
Conversely, the less you collect in
Social Security, the more you may
have to take from your plans.
-
Investment mix. How much you take in
retirement plan distributions will
also depend on how much income you
have coming in from your investments
held outside your 401(k) and IRA.
You will want to review your
portfolio to make sure it provides
you with both growth and income
opportunities during your retirement
years.
Your financial and tax
professionals can help you determine the
appropriate choices when it's time to
start taking distributions from your
retirement plans. By making the proper
moves, you can help ensure your
hard-earned savings pay off for you when
you need them. |
