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5 Things to Beware of With a Required Minimum Distribution From a Qualified Retirement Plan

By    |   Friday, 12 June 2015 01:09 PM

For decades you plan for retirement, saving money in a tax-deferred retirement account. But at some point the money has to come out. This is called a required minimum distribution (RMD).

Here are 5 things to be consider about required minimum distributions.

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1. You are on a time clock
In most cases, the RMD has to begin by April 1 of the year following the plan owner becoming 70.5 years old, according to the Internal Revenue Service. In subsequent years, the amount must be taken out by Dec. 31. In some instances, and RMD isn't required until retirement, even if that is later than the age requirement.

2. Qualified plans are those that have been tax deferred
RMDs are required of IRAs in which owners have been able to save and invest money tax free until retirement. When the distributions on these plans start coming, so do the taxes, as these distributions are taxed as income. SEP, Simple IRA, Traditional IRA and 401(k) plans are included in these requirements.

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3. You are not limited to the RMD
The IRS does not limit the amount of money taken from an IRA once the 70.5 age limit is reached. However, the money taken out will be taxed as income except for any part that was taxed before, such as that from Roth accounts.

4. The burden is on the tax payer
The owner of the retirement plan is responsible for making sure they are taking out at least the minimum required amount. There are penalties for failure to take money out. The IRS may charge a 50 percent excise tax on the RMD amount not distributed.

5. Age of your spouse
RMDs are determined based on the amount in the account and life expectancy. Tables for determining the RMD vary if the sole beneficiary is a spouse who is 10 or more years younger than the plan owner.

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For decades you plan for retirement, saving money in a tax-deferred retirement account. But at some point the money has to come out. This is called a required minimum distribution (RMD).
retirement, required minimum distribution
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2015-09-12
Friday, 12 June 2015 01:09 PM
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