Your Money – You Can’t Take it with You

At age 70 ½ the government (Uncle Sam), wants you to start
taking money out of your tax-deferred retirement accounts.  You know, your 401K, your IRA.  Any retirement account that you have put part
of your income into over the years to avoid paying tax on it.  Now they want you to take a RMD (Required
Minimum Distribution).  That’s IRS talk
for, you’d better start paying taxes on that tax-deferred money.  They figure, you have avoided the taxes long
enough and they want their cut, before you leave this earth.

So, if they force you to take money from your retirement,
how do you determine how much?  Well
there is a calculation to come up with the minimum distribution amount.  Most people have multiple accounts from
changing jobs and not rolling over old accounts to consolidate.  You start by taking the total account value
on December 31st of the previous year of all retirement accounts
(except ROTH IRAs); and you add them together to get one total balance.  The IRS has a chart called the Uniform Life
Table.   The table will have a number for
each age.   Find your age on the table
for the corresponding formula value.  For
example age 70 is 27.4, age 71 is 26.5, and so on.  With each year you get older, the factor goes
down.   Final step is to take the account value
balance and divide by the factor. (IE: A 70yr old with a $100,000 balance would
have an RMD of $3,650.) 100,000 divided by 27.4.

RMDs are required to be taken in the calendar year, with one
exception.  Your first distribution can
be taken as late as April 1st of the year after you turn 70 ½ .  Just keep in mind that the distributions are
taxed in the year you take them.  So if
you wait to take the distribution in the first quarter of the next year, you
will still be required to take a distribution by December 31st of
that subsequent year, which will result in declaring both distributions as
taxable income in the same year. 
Especially when you factor in the half age thing.  Being born on July 1st could
really have some advantages.

If you fail to take the total amount of the RMD in time, you
will have to pay a 50% penalty on any shortage. 
Our $3,650 number from above, would mean you have a $1,825 penalty and
you still have to take out the original $3,650.

So no matter how much we would like it, the reality is we
can’t take it with us, when we depart. 
And even at death, the tax man is going to get his cut.