Should I be taking RMDs?
Unless you have ownership interests in the company, as an active employee, you do not need to take the RMD from your account. After you retire, you will then need to do so.
Your first RMD
Your first required distribution must be made by April 1 of the year following the year when you turned 70½. For example, if you turn 70½ in February 2011, you must take your first RMD by April 1, 2012. The IRS calls this your Required Beginning Date. There's an exception to this rule: If you're still working, you can generally delay RMDs, but only from the retirement plans you participate in with your current employer. In these situations, your first distribution must be made by April 1 of the year following the year of your retirement.
RMD stands for required minimum distribution, which refers to the smallest amount you must take out of your retirement plan to avoid income tax penalties. In certain circumstances, you can delay your required minimum distributions, which is beneficial because you can continue to take advantage of tax-deferred growth
Exception for Active Employees Typically, you must start taking distributions in the year that you turn 70 1/2 years old from employer-sponsored retirement plans such as 401k plans and 403b plans. However, if you continue to work past age 70 1/2, you can delay your required distributions until the year you retire. For example, if you have a 401k plan but keep working until you are 76, you can wait until the year that you retire to start taking required minimum distributions.
No Delay for Owners If you are an owner of the company that you work for, you cannot delay your minimum required distribution past age 70 1/2 no matter how many years you work. The IRS considers you to be an owner if you have at least a 5 percent stake in the business sponsoring the retirement plan.
Penalties for Not Taking RMDs If you do not take an RMD when you are required to do so, the IRS charges you a 50 percent penalty. You calculate the penalty based on the amount of money you failed to withdraw. For example, if you were supposed to take an RMD of $14,000 but you took out nothing, you would owe a $7,000 penalty. However, if you took out $4,000 that year, you would owe the penalty on $10,000, which would mean a $5,000 penalty.
Be sure to work with your accountant to determine the best options for your particular situation.
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Ivory, so long as you are an active employee, you do not have to take RMD’s