Required Minimum Distribution
The IRS requires that owners of retirement plans such as traditional IRAs (individual retirement accounts) start taking minimum distributions or withdrawals from their plans by April 1st of the year that follows the time at which they turn 70.5 years of age. The required minimum distributions are then made each of the following years. The amount of the required minimum distribution is based on the fair market value of the plan at the end of the prior year, and the assumed distribution period which is based on life expectancy given the person's current age. Required minimum distributions apply to a broad range of retirement plans including: 401(k); 403(b); 457(b); Roth 401(k); SIMPLE IRA; SEPs, and; SARSEPs. Roth IRAs are excluded from this requirement while the owner is still alive.
How do 401k plans work?
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When do I have to start taking money out of my 401k?
How does an IRA work?
Eligible individuals can make annual contributions into an IRA account, some of which may be treated on a pre-tax basis and therefore tax-deductible on the individual’s annual tax returns. The funds within the IRA grow on a tax deferred basis. Funds withdrawn from the IRA after the age of 59 ½ are fully taxable, including any and all taxable gains. At the age of 70 ½, funds within an IRA account are subject to the required minimum distribution requirements (RMDs) as set out by the IRS.
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