What are Required Minimum Distributions?

Like millions of other baby boomers, you should have money set aside for your retirement. These retirement-savings accounts are often found in a 401(K) or an IRA account. But what many people do not know about these accounts is that they have a required minimum distribution (RMD) attached to them. Many of the people of the baby boomer generation are now dealing with RMDs for the first time. But few of these individuals know what RMDs are or how much they need to withdrawal from their accounts.

What are Required Minimum Distributions?

A required minimum distribution (RMD) is one of the most important IRA rules. This means the government requires the account holder to take money out of their IRA and 401(K) accounts. This mandate refers to an annual payout that savers must take from their retirement fund at a certain point. This distribution is required by law when the retirees reach the age of 70 ½. This is the age when most of the money is required to be pulled out of the 401(K) and IRAs. But if the government allows the public to save money in these accounts, why are withdrawals required?

Why are Required Minimum Distributions Required?

The government encourages workers to save money for their eventual retirement with tax benefits. Although Congress encouraged people to save money for retirement, the lawmakers don’t want to shelter these savings permanently. To counteract these tax benefits and savings, the IRS mandates a withdraw from these accounts after a certain age. But just how much will depend on how much money is in these accounts and which accounts you have.

Which Have Retirement Accounts Mandatory Withdrawals?

While most retirement accounts have a mandatory withdrawal amount, not all of them do. Under the current law, there are no required withdrawals from Roth IRAs during the owner’s lifetime. Roth IRAs are considered to be different from other tax-sheltered retirement accounts. The assets in these accounts can grow tax-free and be withdrawn tax-free. There is also a useful exception for employees who participate in workplace plans like 401(k)s and are still working after the RMD age. If workers don’t own more than five percent of the company and their specific plan does not require payouts, these workers won’t need to take the required withdrawals until they retire. In addition, if the plan accepts rollovers from other IRAs and other 401(k) accounts, then these assets are also shielded from the payouts until the worker retires.

If you are wondering how much you need to withdrawal from your retirement accounts each year, you should visit your financial advisor. To schedule your appointment, call WeberMessick today!

Withdrawing from Your Retirement Accounts with WeberMessick

Want more information on planning your financial future? What should you know about required minimum distributions? Contact WeberMessick today! Since 1984, WeberMessick’s team of CPA’s and financial advisors have been helping individuals and businesses throughout the Maryland and Delaware devise a plan for their finances. With a “client-first” philosophy, WeberMessick has been helping their clients achieve financial success. Whether it is through financial planning or our accounting services, WeberMessick is always here for you!

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