Q: I just turned 70 on January 12. I am still working, I have a 401(k) and several IRA’s. Do I need to with draw money from these accounts to avoid a tax penalty?
A: The IRS refers to what you are talking about as a Required Minimum Distributions (RMDs). The beginning date for your first RMD is April 1 of the year following the calendar year in which you reach age 70 1/2. In your case, you just turned 70 on January 12 (happy birthday). So you must take your:
1. 1st RMD for 2014, by April 1, 2015
2. 2nd RMD for 2015, by December 31, 2015
3. 3rd RMD for 2016, by December 31, 2016
4. And so on…
Generally speaking, RMD’s apply to:
· IRAs (including Traditional, SEP and SIMPLE IRAs)
· profit sharing
· other defined contribution plan
There are a few exceptions:
· Roth IRAs are exempt (unless inherited)
· You are still working and participating in your employer’s plan
· You own no more than 5% of the company
In your case, you are working for your company so you can delay taking RMDs on your employer’s 401k until April 1 following the calendar year in which you retire (assuming you don’t own more than 5% of the company).
You must, however take RMDs from your traditional IRAs regardless of your work status.
Calculating the RMD?
For most people, you calculate your annual RMD using the worksheet found here: http://www.irs.gov/pub/irs-tege/uniform_rmd_wksht.pdf
If, however, your spouse is the sole beneficiary of your IRA and she is more than 10 years younger than you, you use the worksheet found here: http://www.irs.gov/pub/irs-tege/jlls_rmd_worksheet.pdf
Your total annual RMD must be calculated based on each individual IRA account balance as of December 31 of the year prior to the calendar year during which the RMD must be made.
Even though the RMD is calculated on each individual account, you can take your distribution from any of your accounts.