The New Commonsense Guide to Your 401(k): Rebuilding Your Portfolio From The Bottom up

Chapter 79. Required Distributions

YOU MUST BEGIN taking money from tax-deferred retirement accounts, which include individual retirement accounts (IRAs) and 401(k) plans, but not Roth accounts, by April 1 of the year following the calendar year in which you turn 70½, unless you are still working. If you are a participant in a qualified plan, like a 401(k) plan, and you are still working, you may postpone withdrawals. But even if you care still working, you must start taking distributions if you own more than 5 percent of the company.

Ten years ago, the rules for required minimum distributions were so complex and arcane that dozens of consultants earned a living by providing the best advice to clients. And many of those who did not get expert advice simply got a rotten deal. But in 2001 the IRS simplified the rules, and they are much more straightforward and easy to apply today. Still, this is a crucial issue and you must take great care to do it properly. The necessary instructions are available on live at www.irs.gov.

When a taxpayer reaches the minimum distribution age of 70½, he has until April 1 of the following year to take the first required minimum distribution from his plan. However, the second distribution will be due by December 31 of that same year. For that reason, some taxpayers decide to take the first distribution a year earlier than necessary rather than waiting and being forced to take two distributions (and pay tax on them) in the same year.

Most taxpayers will use ...