For Mark Roberts’ Use: Once you retire, you will probably begin taking distributions from your retirement account immediately. For most people this happens around age 65 or so, but in some cases retirement doesn’t happen that early and you don’t need to take distributions yet. Or, you might retire and prefer to leave your money in the fund where it can continue to grow.

There’s nothing wrong with either of those situations. However, in most cases you will be required to begin taking minimum distributions from your account by age 70 ½. Throughout your career, you have enjoyed some valuable tax benefits by stashing money in your tax-advantaged retirement account. The money grew on a “taxes deferred” basis, meaning you didn’t have to pay federal income taxes on the funds for all these years. Uncle Sam wants you to pay taxes on that money at some point.

For that reason, tax-advantaged retirement accounts require you to begin taking distributions by April 1 following the year in which you reach age 70 ½. Then, each year thereafter, you must take your required minimum distribution (called an RMD) by December 31.

Your RMD will be calculated based upon your age, the value of your account, and your life expectancy as specified by the IRS Uniform Lifetime Table. The formula for determining RMDs is fairly simple: Divide your account balance at the end of the previous year by the number of years you’re expected to live. The answer to that equation is your RMD for the current year.

If you don’t take your RMDs, the IRS can impose a stiff penalty, equal to 50 percent of the amount that you failed to withdraw. Always be sure to calculate your RMD carefully, so that you can avoid this penalty. Also, if you wait until the last minute to take your first RMD, you will be required to take your second distribution in the same year (by December 31). In some cases this action can backfire, because you might push yourself into a higher tax bracket.

As you can see, deciding when to take distributions from your retirement account can be a complicated matter. Call us to schedule an appointment, and we can help you weigh your options and choose a distribution strategy that best benefits you.