Once you turn 72, you are required to withdraw a certain amount each year.
But how can you make that money stretch?
Required minimum distribution
Required minimum distribution is also known as RMD. Once you reach 72, you are required to make a withdrawal annually. That withdrawal must fit certain criteria to be considered an RMD. Read more about it here.
Because you are required to take out money after 72, many people take more than the minimum and end up depleting their savings. However, there are ways to make it stretch.
RMDs are determined by dividing the most recent year-end balance of each account by your life expectancy factor. The amount required to withdraw each year typically increases as your life expectancy declines.
Some of the most important rules about RMDs to remember are:
- If you don’t take the required amount from your account, you will face a penalty of 50%
- You cannot keep funds in a traditional IRA indefinitely
- A qualified charitable distribution counts towards your RMD
- RMDs during a particular year aren’t eligible for rollover treatment
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