Easy Money: Taking Out Required Minimum Distributions

When you have retirement money, meaning 401k, IRA, 403(b), or anything that hasn’t been taxed yet, you have to start taking out required minimum distributions at age 70 and a half. Now there is a law pending that might make that 72, but currently, it’s 70 and a half. More importantly, you need to take your RMD the year you reach this age. What does that mean? Well if you turned 70 and a half on January 1st of 2020, you still have all the way up until the end of the year, and actually, for the first year, there’s a little rule where you can go all the way up until April 1st, 2021. Ultimately it falls within the year that you turn 70 and a half.

The biggest misconceptions that I see are people who say, “Oh, I’m 70 and a half, so I have to get my money out. I HAVE to take out the required minimum distributions.” No, you’re 70 and a half for that year. You have the entire year and actually a little bit of leeway. Now I typically don’t recommend using that next year leeway, because then you’re going to have to take out two RMDs in one year, so unless you really think your money’s going to grow in that period, you probably don’t want the double taxes in that year for the RMDs.

Now, every year after that you have to take out your required minimum distributions by the end of the year, December 31st of that year. If you fail to take out your required minimum distributions, it is a 55 0% tax felony. Meaning if your required minimum distribution was $4,000, you will have a $2,000 tax felony and then you’ll still owe taxes on the $2,000 that you have to take out. So my recommendation is to make sure that you take them out. Now, why do you have to take out the required minimum distributions? It’s simple. The IRS wants to start collecting revenue. They want to start taxing you on this money. They’re saying, “Listen, if you have an IRA, a 401k, a 403(b), etc. those are all retirement accounts. It is time that you retire and starts paying us your taxes, because yes, they’re all taxable.”

So make sure you take out your RMDs. If you’re not sure if you owe required minimum distributions (maybe you don’t know if you have an IRA, non-qualified, or other product), contact your financial professional and make sure you take them in the year that you turn 70 and a half

Securities and advisory services offered through Madison Avenue Securities, LLC, member FINRA SIPC, and a registered investment advisor. Madison Avenue Securities, and Don Anders are not affiliated companies.