Minimum Distributions Self Directed IRAWe recently received an email from a client asking about Required Minimum Distributions. This client is approaching the magic number of 70. She read that at age 70 ½, she is required to starting taking distributions out of her Traditional IRA. She asked if there was a way around this, as she doesn’t need the money and would prefer to allow it to accumulate tax-deferred until she is ready to start withdrawing it for living expenses.

The IRS requires that beginning on April 1st of the year after you turn 70 ½, you must begin to take a distribution from tax-deferred IRAs such as Traditional and SEP IRAs. The IRS has published a Required Minimum Deposit (RMD) table that can be found on their website. Failure to take the required amount could result in a penalty equal to 50% of the amount that should have been distributed.

These rules also apply to 401 (k) s and other qualified plans; however there could be exceptions, such as continued employment with the company that currently holds your 401 (k). The best answer I can give, especially since IRA Innovations does not give any tax advice, is to contact your financial adviser or accountant to review your situation to see if there are exceptions you qualify for.

By doing proper tax planning, there are instances when taking distributions at a younger age can make sense. If you are between the ages of 59 ½ and 70 ½, and are in a financial situation where it may make sense to take a distribution , such as currently being in a low tax bracket, you may be able to withdraw now and still keep your tax on the distribution to a minimum. Again, seeking tax advice is necessary.

Confused? Start by visiting IRS.gov to review the frequently asked questions on this subject. You worked hard to accumulate wealth tax-deferred. Now you owe it to yourself to protect what you accumulated and withdraw it at the right time to reduce your tax liability.