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Once you attain the age of 59½ you can generally take distributions from retirement plans without penalty. If you make an earlier withdrawal you will likely be assessed a penalty, which will be in addition to tax owed on the amount withdrawn. There are some exceptions: If you use the money to buy a first home or pay for medical expenses, the penalty may not apply.
And when you reach age 72½, you will be required to begin taking distributions from your retirement plans. A required minimum distribution (RMD) is the minimum amount you must withdraw from your account each year. This requirement applies to qualified, pre-tax investments in retirement funds. Roth IRAs do not require withdrawals until after the death of the owner.
If you inherit a retirement plan (IRA, SEP, annuity, etc.) from someone who had already begun taking distributions, you will need to continue making withdrawals, and you will be taxed on the amount you receive. For some, adding the withdrawal sum to current income may result in a higher tax bracket, creating an unwelcome tax burden.
If you are age 72 ½, the tax implications for a required minimum distribution can be avoided. If distributions are made directly from the retirement account to a qualified charity instead of an individual, the tax can be avoided. Such distributions may be made each year and can be applied to satisfy some or all of the required minimum distribution.
If you are considering when to make a withdrawal from retirement funds or are in need of making a Required Minimum Distribution (RMD) and would like more information, we are happy to help.
Can We Help?
We have prepared a special report, Charitable Giving Through Individual Retirement Accounts, to help you determine how IRA distributions work as an excellent charitable giving tool. The guide is free and can be downloaded here. There is no cost or obligation.
Contact Jeff coon at Jcoon@fameworld.org for more information.
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