Retirement accounts grow tax-deferred until you need the funds. However, in most cases your money cannot remain in these accounts forever. The IRS has rules that dictate when and how much you must withdraw from your retirement accounts.
- Required withdrawals. The amount you must withdraw each year is called your required minimum distribution (RMD). You can withdraw more than the required minimum distribution from your retirement accounts, but if you fail to take at least the required minimum on time, you face a severe 50% penalty. These rules apply to traditional IRAs and qualified retirement plans, but they do not apply to Roth IRAs during the owner’s lifetime.
In most cases, you must begin withdrawing money from your retirement accounts as follows:
- Your first withdrawal can either be taken in the year you turn age 70½, or it can be postponed until April 1 of the following year. [Read more…]