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Money Minute
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Ariel's Number to Know is 70 ½
Money Minute
Know when you have to start withdrawing your retirement funds.
 

According to the IRS, if you’re age 70 ½, you might need to take what’s called a “Required Minimum Distribution”. This is also known by its initials – RMD. Once you turn 70 ½, the IRS requires you to start taking an RMD from Traditional IRAs, SIMPLE IRAs and SEP IRAs. Likewise, if you have a 401(k) and you’re no longer working, this applies to you too.

There are some exceptions: If you have a Roth IRA, you don’t have to take the required minimum distribution. Similarly, if you have a 401(k) and are still working, you generally don’t have to take an RMD until you retire.

However, there are special circumstances where you might have to take a required minimum distribution even though you have NOT turned 70 ½. For instance, if you’ve inherited an IRA from someone else (it doesn’t matter if it’s a Roth or traditional IRA) — in this case, you may have to take an RMD even though you haven’t turned 70 ½.

The penalty can be steep if you don’t take the RMD — you may face a 50% penalty, so don’t procrastinate.

As you can see, the rules can be confusing. If you’re unsure whether or not an RMD affects you, it’s best to check with the investment firm that holds your retirement accounts. The key is to stay on top of this every year so you avoid paying penalties.





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