Most
qualified retirement plans offer significant tax benefits for those willing to
follow a few IRS specified rules. The government wants to make these plans
(401(k)s, Keoghs, SEPs and traditional IRAs) available for specific needs, and
has established tax law to help eliminate potential abuses of these tax
advantaged investment alternatives.
Retirement Plans are Intended for Retirement
For one thing, the
government wants to make sure that such savings (and income tax benefits)
actually go towards providing retirement income. Stiff penalties for early
withdrawal help encourage investors to reserve their qualified plans for use
during their retirement years.
Required Withdrawals
On the other hand, the
government also wants to ensure that they will one day be able to tax these
accumulated funds. If you have a 401(k), a Keogh, a SEP or a traditional IRA,
you must begin taking regular distributions from your plan by April 1st of the
year following the year you turn 70½.
Although the tax code
allows you to wait until April 1 of the year following the year you turn 70½, it
is generally a good idea to take your first mandatory withdrawal in the same
year you turn 70½. If you wait, you will have to make two withdrawals in the
first year, doubling the amount of taxable income you must declare and
potentially increasing your marginal tax bracket.
The amount you are actually
required to withdraw each year, and which will be subject to taxation, is based
on tables which estimate your remaining lifetime.
Calculating Your Required Withdrawals
It is very important that
you maintain a structured process of minimum withdrawals from your qualified
plans--if you do not meet the required minimum distribution withdrawals, the IRS
will impose a penalty of 50% of the amount not withdrawn, plus the income taxes
due. The good news is that the IRS has made calculating your required minimum
distributions much easier beginning January 2001.
Based on your age, you
simply divide your qualified plan balance as of the last day of the previous
year by the factor from the IRS Pub. 590 table shown below. The resulting
quotient is your annual required minimum distribution.
|
Uniform
Lifetime Table
(for use by unmarried owners and owners whose spouses are not more than 10
years younger in preparing 2002 tax returns) |
|
Current Age |
RMD Divisor |
|
70
71
72
73
74
75
76
77
78
79
80
81
82
83
84
85
86
87
88
89
90
91
92
93
94
95
96
97
98
99
100
101
102
103
104
105
106
107
108
109
110
111
112
113
114
115 and older |
27.4
26.5
25.6
24.7
23.8
22.9
22.0
21.2
20.3
19.5
18.7
17.9
17.1
16.3
15.5
14.8
14.1
13.4
12.7
12.0
11.4
10.8
10.2
9.6
9.1
8.6
8.1
7.6
7.1
6.7
6.3
5.9
5.5
5.2
4.9
4.5
4.2
3.9
3.7
3.4
3.1
2.9
2.6
2.4
2.1
1.9 |
Advisory Services offered through
Envision Investment Advisors, LLC., An SEC Registered Investment Advisory Firm.
(Envision & Crossroads Retirement are not affiliated.)
Minimum Retirement Distribution 
