I just turned 73 so I need to start contributing to my IRA – but I don’t even need the money
Required minimum distributions (RMDs) are a fact of life for most Americans once they reach age 73 — and while many retirees may be taking extra money from mandatory annual withdrawals, what happens if you don’t. the need money yet?
Essentially, an RMD is an annual withdrawal from a pre-tax retirement account, which is mandatory under Internal Revenue Service (IRS) rules. These include 401(k)s, 403(b)s, 457s, government TSPs, and traditional IRA accounts.
As always, RMDs are due by the end of the year – December 31st, to be exact. If you fail to take out the minimum distribution amount that day, the IRS will penalize you with a special excise tax – but more on that in a minute.
Let’s say you’re 73 years old and enjoying a comfortable retirement — but you’re technically not. the need funds you need to withdraw from your pre-tax accounts. So, what can you do? Fortunately, there are a few smart ways to make money work for you.
Here’s what you need to know about making necessary withdrawals from your investment accounts — and tips on how to manage the money if you don’t need it in the future.
When you put money into a 401(k) or traditional IRA, you get to deduct your contributions from your income, so you’re investing tax-free.
Once invested, your money will grow and you won’t have to pay tax on your gains.
However, at some point the government will demand its termination. According to IRS law, you must withdraw a minimum amount each year from all tax-deferred retirement accounts you own.
To make sure you’re actually withdrawing money – and not just letting your money sit in your account forever – the government requires you to start withdrawing money when you reach age 73 (if you reach that age after December 31, 2022 – otherwise, earlier).
The “magic number,” as it were, to withdraw is based on the total value of the account at the end of the previous year and a value called the “life expectancy factor.”
Therefore, the current year’s RMDs are calculated based on the account balance as of December 31, 2023. If you don’t take an RMD, or take distributions below the required amount, penalties can increase.
Source link
