The IRS does allow a few instances where you don't have
to touch your retirement money just yet.
First, if all your
retirement savings are in a Roth IRA, you're exempt
from this rule. Earnings in Roth accounts are tax-free,
and you can leave your money in there as long as you
Second, if you are still working, you
can wait until you actually retire before you collect
from your company pension or 401(k), "as long as
you're not more than 5 percent owner of that company,"
says Ed Slott, author of "Parlay Your IRA into
a Family Fortune." But if you have other, nonwork-related
accounts, such as an IRA other than a Roth, you've got
to start taking money from them now.
Third, if you've already withdrawn the
minimum required amount, either last year when you actually
celebrated your 70th-and-a-half birthday or earlier
this year, you don't have to worry about the April 1
deadline. But you will have to take another chunk out
of your IRA before the year's end. The first amount
you withdrew counts toward the year when you actually
reached the milestone age. The second one applies to
this year's required distribution.
And even if you've been tapping retirement
accounts before you became a septuagenarian, now you've
got to keep a close eye on exactly how much you take
out. All subsequent withdrawals must meet the IRS mandatory
You can always take out more than the required amount.
But that won't affect distributions in future years.
Say, for example, your required withdrawal this year
is $1,500, but you take out $2,000. You can't carry
that $500 over to count against the next required distribution.
But, because you've reduced your IRA balance, your subsequent
minimum distributions will be lowered.
Do you have multiple retirement accounts?
Then you must calculate the minimum withdrawal amount
for each, but you don't necessarily have to raid them
all. You can add the separate amounts and take the total
from just one.
If you made any nondeductible contributions
to your traditional IRA, make sure you have the paperwork
to back that up. This is part of the reason why you
need to file Form 8606, which tracks these amounts and
establishes your cost basis in your account. Your nondeductible
contributions are not taxed when you withdraw them.
Rather, they are a return of your investment (i.e.,
your cost basis) in your IRA.
And the IRS will let you take your required
distribution in installments. Just make sure that these
disbursements, be they monthly, quarterly or some other
increment, total at least the yearly minimum amount
you're obligated to withdraw.
You can get more information on
required minimum distributions in both IRS Publication
575, Pension and Annuity Income, and IRS Publication
590, Individual Retirement Arrangements. The various
life expectancy tables to use in computing withdrawals
can be found in Appendix C of Publication 590.