{"id":10806,"date":"2016-08-16T09:57:15","date_gmt":"2016-08-16T16:57:15","guid":{"rendered":"http:\/\/www.marketriders.com\/investing\/?p=10806"},"modified":"2016-12-20T13:41:48","modified_gmt":"2016-12-20T21:41:48","slug":"investor-facts-required-minimum-distribution","status":"publish","type":"post","link":"https:\/\/www.marketriders.com\/investing\/investor-facts-required-minimum-distribution\/","title":{"rendered":"Investor Facts: What Is A Required Minimum Distribution?"},"content":{"rendered":"

A required minimum distribution (RMD) is an annual taxable withdrawal from your retirement savings dictated by IRS regulation.<\/p>\n

When you open an individual retirement account (IRA), the money\u00a0you place there is\u00a0free of income tax\u00a0in the year you save it. The growth and income on that investment is untaxed, too.<\/p>\n

\"required<\/p>\n

However, upon reaching age 70\u00bd the government will require you to take a specific percentage amount of that money out (a distribution) and continue to do so every year.\u00a0Taxes are due at your regular income tax rate on those annual withdrawals.<\/p>\n

It\u2019s important to consider how a required minimum distribution will affect your income and spending in retirement. Your Social Security income will be\u00a0taxable, and you will have to take required minimum distributions\u00a0on your 401(k) or 403(b) retirement savings accounts<\/a>\u00a0as well, either at\u00a070\u00bd or the date you retire.<\/p>\n

Tax planning in retirement can be tricky. Many people continue to work, which means they generate taxable income even after \u201cretiring\u201d from their long-term career. Some folks take income from Social Security and\u00a0income from a taxable pension, too.<\/p>\n

As a result,\u00a0new retirees sometimes find that working pushes them into a higher tax bracket.\u00a0In addition, whether all or any of your income is taxable at the state level is a matter of where you choose to live.<\/p>\n

The best of all worlds is to have too much income and nothing to do with it. Yet nobody wants to pay too much in taxes either. That\u2019s why a Roth IRA can be a useful tool for reducing your tax burden in retirement.<\/p>\n

Converting to a Roth IRA is not cheap; you owe taxes on the money you convert that year on top of your normal income tax. Yet the money in that Roth IRA now grows tax-free and is not subject to a required minimum distribution, although there are withdrawal rules to understand.<\/p>\n

Lowering the impact of RMDs<\/h2>\n

The IRS uses an actuarial table to calculate how much you will be forced to take out as a required minimum distribution each year. In essence, it\u2019s your account balance divided by a \u201clife expectancy factor\u201d published by the IRS.<\/p>\n

It might be a small amount early on, but if your account grows dramatically in value\u00a0as\u00a0you age RMDs naturally become larger.\u00a0Failing to take out the required\u00a0withdrawal amount results in a stiff penalty \u2014 half the money (50%) rather than your actual tax bracket rate.<\/p>\n

Nevertheless, you can offset the impact of a required minimum distribution by making charitable contributions with the money instead or through\u00a0tax-free gifts to your family. Any legitimate way to reduce your income will lower the impact of RMDs in retirement.<\/p>\n

Always consult a CPA or qualified tax advisor before taking action. Laws can change and your tax situation can\u00a0be affected by many factors.<\/p>\n","protected":false},"excerpt":{"rendered":"

A required minimum distribution (RMD) is an annual taxable withdrawal from your retirement savings dictated by IRS regulation. When you open an individual retirement account (IRA), the money\u00a0you place there … Read more →<\/span><\/a><\/p>\n","protected":false},"author":8,"featured_media":10809,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_wp_rev_ctl_limit":""},"categories":[65],"tags":[],"yoast_head":"\nInvestor Facts: What Is A Required Minimum Distribution? | MarketRiders<\/title>\n<meta name=\"description\" content=\"A required minimum distribution (RMD) is an annual taxable withdrawal from your retirement savings dictated by IRS regulation.\" \/>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/www.marketriders.com\/investing\/investor-facts-required-minimum-distribution\/\" \/>\n<meta name=\"twitter:card\" content=\"summary_large_image\" \/>\n<meta name=\"twitter:title\" content=\"Investor Facts: What Is A Required Minimum Distribution? 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