In my workshops I do an exercise with the attendees where I tell them to close their eyes and imagine their 401k or IRA. Then I tell them, “Now… you know that’s not all yours, right?” I often get strange looks at that point. You see, when you contribute to a 401k or IRA, that money is tax DEFERRED, not tax FREE. It certainly seems tax free when you’re 20, 30 or 40 years old and have it coming out of your check each week before taxes. But, please know, at some point Uncle Sam is going to come knocking for his share. If you’re 70 ½ or older that time is now.
Keep in mind, if you’ve taken withdrawals (and paid tax) from your IRA during the year that distribution applies towards your RMD amount. You just need to make sure you know the amount you need to take and that you take the full amount to fulfill your responsibility. You pay tax on all those withdrawals…. hence the tax DEFERRAL part.
Often, if your IRA is in an Annuity, you’ll hear from the annuity company to remind you of your RMD responsibility. And, it’s also something that we at Senior Financial Advisors can help with. But please note: Retirement plan participants and IRA owners are responsible for taking the correct amount of RMDs on time every year from their accounts, and they face stiff penalties for failure to take RMDs. Please don’t RELY solely on SFA or your annuity company or bank to reach out to you. You should proactively be calculating your own RMD payments. We are happy to assist with calculations, working with the company to get your withdrawals and assisting you with reinvesting your withdrawal if you so desire. If you need to take a withdrawal from an account that Senior Financial Advisors manages for you, please call our office immediately so we can be sure those payments are back to you by December 31, 2013.
You can also use this website for an online calculation: RMD Calculator