You can take out any amount at any time from your retirement plan without facing an early withdrawal penalty once you have reached age 59½, but you must begin withdrawing minimum annual amounts from your plan once you reach age 70½.
If you fail to take out the required minimums, you may face a 50 percent excess accumulation tax. The Internal Revenue Service imposes the tax on any part of the annual minimum distribution that you fail to take. *
If you are still working at age 70½, however, you can delay beginning your required minimum distributions until you retire—with two exceptions: If you own at least 5 percent of the company or if your plan is an IRA, you must begin making regular distributions even if you are still working.
Your required beginning date is the deadline to begin taking distributions from your plan. If your plan is an employer plan, you have two possibilities: your deadline is April 1 of the year following the later of either:
- The year you attain age 70 1/2
- The year you retire
For example, if you retired at age 68 and reached age 70½ any time during the year 2007, your required beginning date would be April 1, 2008. Beginning the second year after you turn 70½, (or after your beginning date, if it's later), you must take your required distribution during the calendar year—in other words, from January 1 through December 31. You may not wait until April 1 of the following year to take the distribution.
There also are a few other special rules. For example, people participating in a government or church plan also may be able to delay their required beginning date. If you have specific questions in this area, you may want to consult a plan or tax advisor.
You also need to carefully consider the timing of your first year's payments in light of possible tax consequences down the road. What does this mean? Consider the following example. Eleanor turned age 70½ in 2006 and delayed taking her first required distribution until March 2007. That same year, her second year after turning 70½, she had to take another required distribution before December 31. The result? Taking two distributions in the same year pushed Eleanor into a higher income tax bracket.
This is a complex topic, and one you may want to review periodically as you either approach retirement or move beyond that milestone.
* Under the Worker, Retiree and Employer Recovery Act of 2008, the Required Minimum Distribution (RMD) rules applicable to IRAs and qualified plans were suspended for 2009 RMD amounts.
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