As the year-end approaches, if you are 70 ½ or older, you need to take your IRS required minimum distribution (RMDs). This means that by December 31st you need to withdraw money from you retirement accounts — IRA accounts, 401(k)s, 457 plans and other tax-deferred retirement savings plans like a TSP, 403(b), TSA, SEP, or SIMPLEs, but not Roth IRAs.

What does this mean?

A lot of people are confused about the when and how. Essentially, the retirement savings Here are a few things to remember if you:

  • Turned 70 ½ in 2017, you have until April 1, 2018, to take your first RMD — a little bit of a grace period since it’s your first withdrawal.
  • But if it’s not your first withdrawal, December 31, 2017, is your deadline.
    Have more than one traditional IRA, you may take the distribution from any single account or any combination of accounts.
  • Miss the deadline and you could be penalized up to 50% of the amount you should’ve withdrawn on top of the regular income tax on the distribution.
  • Are still working and contributing to your employer-sponsored retirement plan, some plans will allow you to delay your RMD.
  • End up paying a penalty, you can submit form 5329 with your tax return with a valid reason for missing the RMD deadline.

Here is an example:

In March, Sally will turn 70, so in September she will 70 ½. Her first distribution must occur by April 1st of the following year, although she could take it in the current year. If Sally waits until April 1st of the year following the year she turns 70 ½, she will have to take a required minimum distribution for both years. Why would she wait to take her distribution? Based on how best to minimize her taxes, Sally might decide to wait and take two distributions in the second year.

How much do I need withdraw?

The rules can seems a bit complex and you can do the calculations yourself by following the IRS instructions here.

Another way is to use an online calculator. I like the U.S. Securities and Exchange Commission’s calculator, but be warned it doesn’t consider things such as beneficiaries or spouse’s age (there are different rules if your spouse is 10 years younger than you). Also, it is advisable to consult a tax expert or accountant to make sure you’re really taking the right distribution.

Year end is a time of celebration, but also a time to make sure your finances are in order. So, if you have retirement accounts and are 70 ½ or older, make sure you take those distributions so you have a happy 2018.

🎉🎊 Happy New Year! 🎊🎉