Picture this: You’ve regularly put away money in your retirement account—through thick and thin—and now it’s time to start thinking about withdrawals. What do you need to know?
Once you attain the age of fifty-nine and a half, you can generally make withdrawals from retirement plans without a penalty. If you withdraw sooner you will likely have to pay a penalty in addition to the tax you owe on the amount withdrawn. However, there are some exceptions. For example, if you use the money to buy a first home or pay for medical expenses, the penalty may not apply.
On the flip side, when you reach age seventy-two*, you are required to begin taking distributions from your retirement plans. A required minimum distribution is the minimum amount you must withdraw from your account each year. This requirement applies to qualified, pretax 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 withdrawals, you will need to continue making those withdrawals, and you will be taxed on the amount you receive. For some people, adding the withdrawal to their current income may place them in a higher tax bracket, creating an unwelcome tax burden.
If you are age seventy and a half, the tax implications for a required minimum distribution can be mitigated. If you make distributions directly from a retirement account to a qualified charity instead of an individual, the tax can be avoided. You can make this kind of distribution each year, and in doing so you can satisfy some or all of the required minimum distribution.
If you are considering when to make a withdrawal from retirement funds or are interested in learning about making a required minimum distribution (RMD) to a charity or ministry and would like more information, please email us at contactcenter@cdfcapital.org or call us at 888-540-7112.
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*Revisions in law extended the start of RMDs beyond age 72 on a gradual basis. For those who reached age 72 after Dec. 31, 2022, and age 73 before Jan. 1, 2033, the RMD age would be 73. For those who reach age 74 after Dec. 31, 2032, the RMD age would be 75.
