The oldest of America’s 75 million baby boomers are turning 70 this year.  This means the IRS will soon be requiring them to start cashing out their tax-deferred retirement savings accounts.  How you handle these withdrawals can have a profound effect on your own retirement and on what you leave to your heirs.

Here is a look at the rules: Once you turn age 70 ½, the IRS requires you to take “required minimum distributions”, or RMDs, from your IRA and 401(k) accounts.  You will also have to pay income on these withdrawals as they have never had income tax paid on the money you placed into these tax deferred accounts.  If you do not take these distributions, you can be hit with a 50% penalty on whatever amount you were required to withdraw but did not.
The exact amount that must be withdrawn is based on an IRS worksheet.  The worksheets are available on the IRS website.  Generally, your first required distribution will be a fairly small percentage of the assets of your account, but the percentage increases each year after that.
Typically, you must take any RMDs by December 31 of each year.  However, you are allowed to wait to take your first year’s RMD until April 1 of the year following the year in which you turn 70 ½.  So, if you turn 70 ½ in January 2017, you can wait until April 1, 2018 to take your first distribution.
Ms. MacDonald’s practice is limited to Estate Planning, Probate & Trust Administration.  Ms. MacDonald maintains her practice in the Santa Clarita Valley at 25115 Avenue Stanford, Suite A-209 in Valencia, California.  She can be reached at 661-294-6464.