The theme this week on the One Minute Retirement Tip is What You Need To Know Before Starting IRA Withdrawals. I’m answering the most common questions I get about IRA required minimum distributions. 

Today, I'm talking about how much you have to withdraw from your IRA or your 401k accounts once you reach age 72 when required minimum distributions Begin. The amount that you are required to withdraw each year from your IRA or 401K accounts actually will change every single year. And that's because it's based on two factors one is your age and the other is your previous years account ending balance. And because those two things are always in flux each year or you're likely to have a different rmd requirement and it could be wildly different from year to year.

I think it helps to understand what's really happening here. As I explained yesterday the government wants its tax revenue back and so the goal is that not that you get to a age 90 or a hundred with a massive IRA account balance that's been growing for 50-60+ years, But that instead you gradually end up to pleading this account over time and as a result you pay more in tax revenue back to the US government over that same time.

What the end goal in mind I think it's easier to understand how those are MD's are calculated and why that amount changes every year. If you do the math and you turn 72 this year you need to take your first required minimum distribution, the withdrawal amount works out to about 3.9% of your total account balance. So if you have $100,000 in your IRA account, Is the required minimum distribution is just over $3,900, roughly equivalent to a 3.9% withdrawal rate.

If I use those same numbers hundred-thousand-dollar IRA account balance but instead of you being 72 years Old, you're 92 years old now that was strong rate is much much higher it works out to about a 9.8% withdrawal rate. So I'm not save $100,000 you have to take out just over $9,800 in 2021 if you are 92 years old.

So thankfully it's pretty easy to figure out what that rmd amount is each year - there are free calculators available online - just google RMD calculator - and if you work with a financial advisor, they will usually be proactive in calculating your RMD for you and ensuring that you take your full RMD withdrawal. 

It gets a little bit more complicated if you have multiple accounts in different places, which is actually one of the reasons why I always recommend to clients - once your transition into retirement don't keep your old 401k account balances, don't keep a bunch of different IRA accounts at different financial institutions. 

Sometimes we collect these accounts over our working lives but then when you get to retirement and you have to start taking that required minimum distribution, trust me when I say you're going to like the simplicity of not having to calculate and keep track of multiple required minimum distributions across multiple accounts at multiple financial institutions.

When you have accounts spread out at different places, it becomes a lot more likely that you're going to miss a required minimum distribution or not take your full required minimum distribution, and when that happens the tax penalty of missing a distribution are pretty steep.

That’s it for today. Thanks for listening. My name is Ashley Micciche and this is the One Minute Retirement Tip. 

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