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The Huge Milestone Baby Boomers Will Reach On July 1

When you turn 70.5, you have to start withdrawing from your retirement savings -- even if you don't want to.

Baby Boomers will be reaching yet another milestone on July 1: That's when the oldest ones will begin to turn 70.5 -- the magical age when the IRS says they have to start withdrawing money from their tax-deferred retirement accounts -- their IRA, workplace 401(k) and self-employed retirement plans. And if this generation of protesters and anti-government activists don't like 'dem apples, the IRS is poised to simply swoop down and take half of their annual distribution anyway.

It's no secret why the IRS is chomping at the bit. For years, boomers' money has sat in these retirement accounts, tantalizingly out of the IRS' reach as they accrued tax-deferred earnings.

When retirees reach 70.5-years-old, the IRS sends the bill on those holdings; it's known as the Required Minimum Distribution and it symbolizes the cracking open of the retirement nest egg -- sometimes whether you are ready or not.  

Here is a short course on what will happen:

1. Although RMDs are triggered once you turn 70.5, don't panic.

You have until April 1 of the following year to make your first required withdrawal or be taxed at 50 percent of what it would have been. #DontMessWithTheIRS

2. Don't guess about how much money you must withdraw.

Use one of the three tables the IRS created based on life expectancies, found in IRS Publication 590-B. (Just a footnote: If you are married to a spouse at least 10 years your junior, you are permitted to spread out your withdrawals over a longer life expectancy and therefore don't need to take out so much each time.)

3. Even if you are still working, you may have to take your RMD.

But you can still probably continue contributing to the company 401(k), if the company plan permits it. Check with your plan administrator and the Employee Plans Compliance Resolution System (EPCRS).

4. Getting this right is on you.

Retirement plan participants and IRA owners, including owners of SEP IRAs and SIMPLE IRAs, are responsible for taking the correct amount of RMDs on time every year from their accounts, and they face stiff penalties when they don't.

There are some ways around these rules. Check out this post about what to do if you miss a RMD deadline.  

 [Clarification: An earlier version of this post said it was mandatory to take RMDs even if you were still employed. You still have to make mandatory withdrawals from your IRAs, but can delay taking them from your current employer-provided plan, such as your 401(k), until April 1 of the year after you retire.]

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