Dear Liz,
At 72, I still work full time and contribute to my 401(k) account each month. I was told by my 401(k) provider that I did not have to take any money out until I retire. I have read that I should have started to take money out each month starting at age 70 1/2. Which is true?
— Marilynn

Dear Marilynn,
Your 401(k) provider gave you the correct information.

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You typically have to start taking distributions from retirement accounts by April 1 of the year after you turn 70 1/2. After that, distributions — which are based on your life expectancy — must be made by Dec. 31 each year. Uncle Sam was willing to let your accounts grow tax-deferred as an incentive to save, but eventually he demands his cut.

The penalty for ignoring required minimum distributions is steep: You must pay a 50 percent federal tax on the amount that should have been withdrawn, plus regular income taxes. Clearly, these aren’t rules you should ignore.

How to determine your RMD for this year

  • Note the balance in your tax-deferred workplace retirement account as of Dec. 31 of the previous year.
  • Determine which of the three tables in Publication 590-B applies to your situation.
  • Assuming it’s the most commonly used Table III, look for your age and the corresponding distribution period. For example, if you are age 72, your distribution period is 25.6.
  • Divide your account balance by the distribution period to determine your RMD.

Example: You had $300,000 in your 401(k) plan as of Dec. 31 last year. You must withdraw $11,719 to meet your required minimum distribution. If you take out more than this amount, it doesn’t count toward next year’s RMD.

Note that the RMD rules differ for IRA accounts; you can aggregate the balances in all your IRAs, determine your RMD for each of them, and take the required distribution from one of them if you like.

Required minimum distribution rules apply to all employer-sponsored retirement plans, including profit-sharing plans, 401(k) plans, Roth 401(k)s, 403(b) plans, and 457(b) plans, as well as to traditional IRAs and IRA-based plans such as SEPs, SARSEPs and SIMPLE IRAs. The rules don’t apply to Roth IRAs.

Another exception to the required minimum distribution rules is when you continue to work. You still have to make mandatory withdrawals from your IRAs, but you can delay taking them from your current employer-provided plan, such as your 401(k), until April 1 of the year after you retire. (Employees who own more than 5 percent of the company sponsoring the plan can’t use this delaying tactic, however; they must start distributions from their 401(k) accounts after age 70 1/2, regardless of whether they continue to work.)

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