IRS Wishes Baby Boomers A Happy 70 ½ Birthday!

Happy 70½ Baby Boomers! It might surprise you to learn that in most cases you MUST start taking money from your traditional IRA, 401(k), and other retirement accounts you may have when you celebrate your 70½ birthday. Why? One rule for retirement accounts, in particular IRAs and 401(k)s, requires you to take minimum distributions beginning at age 70½. This means owners must start withdrawing money - and in most cases it will be TAXABLE. The required minimum distribution (RMD) is the amount of money you must withdraw from your tax deferred retirement accounts each year. The amount you must withdraw is based on your age, the value of all your traditional IRAs (or each individual retirement account) at the end of the previous year, and the insurance industry's life expectancy tables. You are not only forced to take a distribution the year you turn 70½ you must take a minimum amount of money each year - whether or not you need - for the rest of your life. If you don't withdraw your minimum distribution amount, there is a tax penalty equal to 50% of the amount you should have taken.

The rules are slightly different for IRAs and retirement plans so let's look at each one.


First of all, there is no RMD for the Roth IRAs. You can leave that money alone and pass it on to your heirs. You can also withdraw only what you need and only when you need it making it possible to skip a year, or more, of withdrawals.

Traditional IRAs are another story - not only are you required to start withdrawing from your IRAs at 70 ½ and each year after, you must also combine the value of ALL of your traditional IRAs and determine the amount of money you need to withdraw each year. To add insult to injury, if you can't roll over any required distribution amount to a Roth IRA you must pay your taxes on the distribution. But hey, you can instead put it in a traditional savings vehicle...and only pay taxes on the earnings.

Finally, you can continue to contribute to your Roth IRA if you are still working. However, you can no longer contribute to your traditional IRA after age 70½ no matter how much money you continue to make while working.


If you are still working, you do not have to take money from your current employer's retirement plan. However, once you leave this job you must start taking your annual distributions. In addition, for any deferred compensation type of retirement plans you have that you aren't taking money from, you must start withdrawing from that account now.

One advantage of a retirement plan over the IRAs is that you do not have to combine any multiple plans you may have. You can allow each plan administrator to determine your annual distribution amount and make sure you are following the RMD rules.

You may want to consider speaking with a tax pro to help you figure out your IRA and retirement plan withdrawal requirements since the RMD rules are quite complicated. To help you get an idea of what you may need to be taking, and when, the IRS offers Required Minimum Distribution Worksheets and additional resources on their Website. Also, AARP has a calculator with some specific options that can help hone in on your situation. Keep in mind that even using these tools can be tricky. And, if you don't take the correct amount at the right time, the tax penalties can be severe.

Hopefully, the only gift you are giving the IRS in your 70½ year is your actual tax liability and not extra money in the form of penalties. If you take a look at your situation now, you can figure out when and how much you might need to take so you have time to make corrections before the end of the year. After all, it is your money, so plan ahead and keep more of it!

If you need some additional information including some of the tools and worksheets mentioned above see the following:

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