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IRA Withdrawals – Something to Look Forward To

[/fusion_text][fusion_text]The U.S. government wants to help you save for retirement. That’s why it created 401k plans and IRA accounts for tax-deferred retirement savings. You can save money in these accounts, receive a tax deduction on those contributions, and not pay any taxes on the gains until you spend the money in retirement. Just to make sure you don’t get too sweet of a deal, the government also has rules to make sure you start spending the money in those accounts. Taxes need to be paid at that point.

In the year that you turn 70.5, you need to start withdrawing from your traditional IRA and all 401k accounts (including Roth 401k accounts – Roth IRAs do not have withdrawal requirements). It starts out small, roughly 3.7% of your year-end account balance needs to be taken out next year (the actual calculation can be found here. The percentages gradually increase as you age, but don’t reach 10% of the account balance until age 93.

The government can’t force you to spend the money, of course, but you do want to make sure to pull the required amount out of your 401k/IRAs each year. The penalty for missing a required distribution is 50% of the distribution you were supposed to take. So take a trip to the North Shore of Lake Superior, give the money away, or even just move the money into another investment account and pay the tax due, but don’t skip the distribution and forfeit 50% to the IRS.[/fusion_text][separator style_type=”single” top_margin=”” bottom_margin=”” sep_color=”” icon=”” width=”” class=”” id=””][fusion_text]

Legal Disclaimer: These posts do not constitute an offer or recommendation to buy or sell any securities or instruments or to participate in any particular investment or trading strategy. They are for informational purposes only. ASA gathers its data from sources it considers reliable. However, ASA makes no express or implied warranties regarding the accuracy of this information or any opinions expressed by the author and may update or change them without prior notification.