MONEY MATTERS: Required Minimum Distribution


It's great that every body has to have a retirement account of some kind, but eventually Uncle Sam is going to make them take that money out. What age does that happen?

Since you get a tax treatment or take favorite investment, you know it grows tax deferred. So the IRS is taking the position of eventually wanting to get it out and receive their tax. So it's called required minimum distribution as you alluded, or RMD and you have to start by age 70 and half, the year you turn 70 and half.

Does it matter what type of account you have? Whether it's a 401k or does it affect something like an IRA?

Mostly it affects both of them. With a 401k if you're still working you don't have to start taking out. Say you're 72 and still working and you have a 401k you're not required to take it out. Now, how does the government figure it out? What you own them? There's a table they use and just a rule of thumb they look back to 12 31 of the previous year and then the first year at 70 and half the divisor is 26.2 roughly would be a pretty good idea. Divide that number by that divisor that's pretty much what it would be.

What happens if you decide to be a wild guy and decide not to take it out?

There's a fifty percent penalty on what should have come out. So their on to that as well. Defiantly pays to take the money and at least do something with it.