Welcome to Money Wisdom. Today’s question is, “When am I required to withdraw money from my IRA?”
Whether you want/need to spend the money in your IRA or not, the IRS forces you to start drawing from your account at age 72. If you don’t take the money out, the penalty is 50 percent, so it’s important to make sure that you get this number right. If you left your retirement money in a plan from your employer, such as a 401(k) or a 403(b), you are forced to withdraw it out of that account. It’s important to consider that there’s an automatic tax withholding, which might be more than you actually need to withhold. Therefore, this may not be ideal.
Required Minimum Distribution (RMD)
Most folks roll money out of their plan at work and into an IRA. The primary reason for doing so is to have more control. One of the things you would have more control over is whether you’re going to take your RMD out of that account or out of another one. For example, if you have 10 different retirement accounts, you don’t necessarily have to take your withdrawal out of every single one of them. Again, the penalty for not taking money out is 50%, so be careful.
Important Questions to Consider
- How much is required to take out?
- Where does it make the most sense to withdraw that money from?
- How do you want to take it?
Some people prefer a direct deposit into the bank. Others opt to take the money all at once. Either way, you have to be careful here when it comes to taxes. If you make a mistake, suddenly it’s tax time and you have to write a big check to the IRS that you weren’t anticipating and that can mess up the plan.
Age 72 is the point at which you have to start drawing this money out. Whenever you’re going to retire, a big part of the conversation is knowing where exactly your income is going to come from and how to do the right thing tax wise. You’re forced to take out anything that you’ve left in your retirement accounts, whereas if you move the money into a Roth, you’re not. Maybe that makes sense. Make sure to have those conversations and do it well before age 72.
Thanks for joining me and I hope you found this information helpful!
P.S. If you enjoyed this topic and want to learn more, download your copy of our digital offer, “ROTH IRA Conversions: 7 Things to Know”.
P.P.S. Feel free to submit questions here for a chance to have them answered!