Much of retirement planning revolves around saving and investing for several decades. So you might imagine that when retirement arrives, all you need to do is start taking withdrawals from those retirement accounts. Not so fast! You might be surprised to learn that retirement planning continues after retirement! In particular, you should strategize your distribution plan for several reasons.
Understand the rules for required minimum distributions (RMDs). The first thing you should know is that you are actually required to take a certain distribution from qualified retirement accounts each year. You can wait until age 72 and allow your funds to continue growing, but at that point RMDs do begin.
You must take your withdrawal by April 1 of the year after you turn 72. From that point forward, RMDs must be taken by December 31 each year.
If you forget to take your full RMD for the year, the IRS will charge you a penalty of 50 percent of the amount you should have withdrawn.
Your RMD is calculated via a formula that uses your age, life expectancy, and the account balance. It will change each year, so you should take care to calculate it carefully.
Sometimes you can delay RMDs. Those of you who are still working and contributing to a retirement account at age 72 might be eligible to delay your RMDs. But this decision is subject to different rules and procedures, so check with your financial professional for more information.
What if you hold multiple retirement accounts? You might assume you can just start taking withdrawals from any account, but that could be a mistake. Withdrawals from Roth IRAs, for instance, do not count toward your RMD.
The procedures for required minimum distributions can become quite complex when you retire. But remember, you don’t have to solve this dilemma alone. Let’s continue to meet even after you retire, so that together we can create a withdrawal strategy that best suits your situation.