The theme this week on the One Minute Retirement Tip is What You Need To Know Before Starting IRA Withdrawals. If you’re 65 or older, you’re probably thinking about how to be smart with required minimum distributions from your IRA. So this week, I’m answering the most common questions I get about IRA withdrawals and required minimum distributions. 

Today, I'm tackling the most frequent question I get asked about rmds or required minimum distributions and that is when do I have to start Ira required minimum distributions? And why do I even have to take these distributions in the first place?

Let’s address that second question first - Why do I even have to take these distributions? Well if you have an IRA or a 401k account, you were making contributions to the account throughout your entire working life. And every dollar that you saved in your 401k or an IRA - as long as it was going into a traditional or pre-tax 401k or IRA - you didn’t pay taxes on those contributions. 

In fact, you were getting a tax deduction on those contributions. On top of that, all the growth and gains in your 401k or IRA weren’t taxed either.  

You didn’t pay taxes on any of the contributions and you didn't pay taxes on any of the growth that was in that account. 

At some point, Uncle Sam puts his hands back into the money bag and says “all right now it's time for my money”.

Hence the requirement that at some point during your life you have to start taking money out of the account and when you do every dollar that you pull out of your IRA or 401k account now gets counted as income and you pay taxes on that income from your IRA or 401k account. The best basic answer of why you need to take his withdrawals in the first place and it's because the government wants its tax money back and they choose to take that on the back end.

So when you get to retirement - more specifically when you get to age 72, you need to start taking withdrawals from your IRA and 401K accounts in the form of these required minimum distributions or RMD's.

Now let's tackle the timing of when you have to start taking your RMD from your IRA because the answer to this question has actually changed over the last couple years.. The old rule stipulated that you needed to start taking your required minimum distributions by the end of the year that you turn 70 ½. But thankfully we moved away from the weird half ages with the  SECURE Act that was passed in late 2019. If you turned 70½ years old on or after January 1, 2020, you don’t need to start RMDs until age 72. 

In 2020, we had a bit of a curve ball with this new rule, because of the coronavirus. Required minimum distributions were actually not required in 2020, but now that we’re in 2021 and starting to come out of Covid, required minimum distributions are now required again at age 72 & older. 

There are a few exceptions to this age requirement. If you're still working and you have a 401k you may be able to delay those required minimum distributions, but in general that's the rule - once you turn 72 you have to start pulling money out and count it as income.

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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