July 9, 2013 Admin | July 9, 2013 What is RMD? When does it kick in? What type of accounts does the RMD affect and which type is not affected?
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RMD stands for Required Minimum Distributions. RMDs generally are minimum amounts that a retirement plan account owner must withdraw annually starting with the year that he or she reaches 70 1/2 years of age or, if later, the year in which he or she retires. The RMD rules apply to most retirement accounts, except the Roth IRA.
Great job, Katherine! Let’s recap. When you hit age 70.5 you will be required to take out a minimum amount of money out of your traditional retirement accounts (401k, 403b,TSP,457, SEP, IRA). You can usually have the institution do this for you and then pay you on a monthly basis, quarterly, or annually based on what you would prefer (I would recommend you consolidate all of your retirement assets at a place like Vanguard and then they will do this for you AT NO COST). This computation takes into account your gender and life expectancy as they compute how many years you are projected to live. It is CRITICAL that you make sure this gets done. There is a very large penalty you will pay to the IRS if you fail to take your RMD when required. If you have relatives who are in this age range, make sure they are being cared for. There are plenty of “helpers” who are more concerned about their bottom line than your loved ones!
None of that applies to a Roth account, whether that is a company retirement Roth account or a Roth IRA that you have outside of your company. There is no requirement to take those funds out at any point in your life.