At What Age Must I Take Payments Out of My IRA?
During your working years, your goal is to build your IRA nest egg as large as possible. However, after you retire, your goal is to make that accumulated money last as long as possible. Many retirees can expect to live 30, 35 or even 40 years in retirement, so determining how much to withdraw from your IRA is a big concern. If you have a traditional IRA, however, the IRS requires that you take a minimum distribution once you reach the age of 70 1/2.
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Required Minimum Distribution
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When you reach the age of 70 1/2, you must begin taking a required minimum distribution from your traditional IRA account. This RMD is derived from a formula compiled by the IRS. This formula takes a number of factors into consideration, including your age, your life expectancy and the balance in your account.
Roth IRA
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If you have a Roth IRA instead of a traditional one, the requirement to take required minimum distributions does not apply. You can pull money from your Roth IRA as you need it to supplement your income, but you are not required to take any money out at all if you do not need it. This provides additional flexibility and allows you to adjust and fine-tune your retirement budget as needed. The lack of an RMD requirement on a Roth IRA also allows you to pass the account on to your heirs if you wish.
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Figuring Your RMD
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If you use a tax preparation software package to prepare your tax return, that software should include a calculator to help you determine the amount of your required minimum distribution. To use that calculator you simply plug in the current balance in your traditional IRA account, along with your age and gender. The calculator then determines your required minimum distribution. If you have your taxes done by a professional tax preparer or CPA, that preparer can calculate the required minimum distribution and tell you how much to withdraw.
Taxable Income
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The IRS considers the money you withdraw from your traditional IRA taxable income, so you need to compute your tax liability. If you want to minimize your taxes and you do not need the money, withdrawing only the required minimum distribution makes sense. If you need additional income to supplement your other sources of retirement money, you can always take more than that RMD, although you will incur an additional tax liability for doing so.
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References
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