Make sure you’ve got a plan for your RMDs

Do you have a handle on your retirement plan distributions? If not, you could be faced with penalties or higher taxes. Consider these tips.


After all the advice you’ve received about saving for retirement, taking money out of your traditional IRAs and other qualified retirement plans may feel strange. Yet once you reach 70½, the required minimum distribution (RMD) rules say you have to do just that.

Under these rules, you must withdraw at least a minimum amount from your retirement plans each year. Since the withdrawals are considered ordinary income, planning in advance can help you prepare for the impact on your tax return. Here some planning tips:

  • Make a list of your accounts. The rules require an RMD calculation for each plan. With traditional IRAs, including SEP and SIMPLE plans, you can take the total distribution from one or more accounts, in any amount you choose. You can also take more than the minimum.

However, withdrawals from different types of retirement plans can’t be combined. Say for instance, you have one 401(k) and one IRA. You have to figure the RMD for each and take separate distributions.

Why is that important? Failing to take distributions, or taking less than is required, could result in a penalty of 50 percent of the shortfall.

  • Plan your required beginning date. In general, you’re required to withdraw RMDs by Dec. 31, starting in the year you turn 70½. The rules provide one exception: You have the option of postponing your first withdrawal until April 1 of the following year.
  • Consider the ramifications of delaying your income. Delaying income can be a sound tax move. But because you’ll still have to take your second distribution by Dec. 31, you’ll receive two distributions in the same year, which can increase your taxes.

Give us a call if you have questions about your RMDs and how they’ll affect your taxes. We can help you create a sound distribution plan.