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How to Make the Most of Your Retirement Savings

IRADid you have a retirement savings programs through work?  While those investment options may have been limited, you typically have more choices after you retire.  For example, 401(k)s can be rolled over into IRAs.  On page 23 of IRS Publication 590, Individual Retirement Arrangements, you can see the rollovers that are permitted between different types of plans.  But, investing is only half the story when it comes to maximizing retirement savings.  It’s just as important to avoid IRS penalties.  Here’s some basic information that can help.

What Are the IRS Annual Distribution Requirements?

These rules apply to IRAs and some other qualified retirement accounts, but not to Roth IRAs.  Distributions don’t have to be taken from single retirement accounts, either.  The IRS is only looking at a total distribution amount compared to the combined value of all your retirement accounts that have minimum distribution requirements.  It may be easier to take a distribution from one account instead of several accounts.

In the year after you become 70 and ½ years old, you need to take a required minimum distribution by April 1.  And, you’ll be taxed on the annual distributions.  Compared to the 50-percent penalty, that’s not so bad.  You’ll have to take distributions each and every year to avoid that penalty.

How Much Do You Have to Withdraw?

The amount you have to withdraw each year depends on your age. The Uniform Distribution Table is used to calculate minimum distributions.  As you age, the percentage you need to withdraw increases.

You may want to use the 401(k) and IRA Required Minimum Distribution Calculator at http://m.investor.gov/tools/calculators/required-minimum-distribution-calculator.  Here’s an example to give you an idea of what withdrawal requirements look like.

Let’s say you’re 75 and you have $200,000 in any combination of IRAs and qualified employer retirement plans (remember Roth IRAs are not included).  You would need to withdraw $8,734 during the year you reach age 75.  To understand how that’s calculated, divide the $200,000 by 22.9.  That’s the life expectancy of someone who’s 75 years old listed in the IRS’s Uniform Distribution Table.

The important thing is to confirm you take at least the minimum required distribution every year and start doing that by April 1 of the year after you are 70 and ½ years old.

Wiley Long is founder and president of Medigap Advisors, and is passionate about helping people navigate the confusing waters of Medicare. He is the author of The Medicare Playbook: Designing Your Successful Health Coverage Strategy, a clear and simple explanation so you can make the most of your Medicare coverage. For more information visit www.MediGapAdvisors.com.

 

 
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