At Work

What you can count on from your retirement savings … and have no choice about using πŸ€‘

If you are retired, chances are you have heard about the RMD, the required minimum distribution and like it or not; need it or not you must take money from your 401k or IRA. But how much? Usually your record keeper will do the calculation and tell you what must be withdrawn.

And don’t mess with the RMD. If you fail to take the required amount by the end of the year, there is a whopping tax of 50% of the amount you should have withdrawn.

RMDs do not apply to Roth IRAs, but do apply to Roth 401k plans. Different rules may apply if you are a beneficiary of an IRA.

But there is an advantage to the RMD. You can use the schedule to estimate your income stream in retirement. When you take the RMD, you probably want to have income tax withheld.

But here’s another opportunity. If you do not need the entire RMD for living expenses, you can reinvest the balance thus building an emergency fund and possible an new income stream.

Let’s say your IRA balance is $100,000 on December 31, 2017 and you are age 75. Your 2018 RMD is 4.3668 percent of the $100,000 or $4,366.81. As you can see, the portion of your account that must be withdrawn increases as you age.

Note that the percentage required by the RMD is quite modest in the early years. This means there is a reasonable opportunity for your account balance to continue to grow even with withdrawals. And that’s the whole idea … to not outlive your money πŸ˜ƒ

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