SAN DIEGO (KGTV) — If you were born before 1952 and have traditional investment plans, there are some important withdrawal requirements you need to meet or else you may have to deal with penalties.
That requirement is called required minimum distributions, or RMDs.
"It's the IRS wanting to basically claw back some taxes that have been tax deferred," said Thomas Boles, owner of Telesis Tax & Financial.
This applies to those who have an IRA, which is a personal retirement savings account. You basically pay into it and watch it grow thanks to tax-free interest.
But when you hit the age of 73, you are required to withdraw from those funds.
"Basically the IRS is saying we've given you a free run for the last 30 to 40 years, and so we are now looking to get some of that taxable income back to put into the government," Boles said.
How much is taken out? Boles says it can get complicated because each person's deduction is different.
The RMD is calculated by a formula the IRS uses that looks at your account balance, your age and your life expectancy. There are online calculators that can calculate that for you, but Boles says it's best to check your IRS statements for those details.
"There will be blurbs — there will be writings saying RMD coming up next year. This is your RMD amount," Boles said.
If you have more than one IRA, Boles says you only have to take a deduction from one.
"If you have 3 IRAs and your RMD is $3,000, you can take it from 1 IRA. You don't have to take $1,000 from each — as long as you satisfy your RMD amount it can come from one account," Boles said.
If you don't fulfill your RMD requirement by December 31, the IRS will penalize you, requiring that you pay 25% in taxes for the amount you didn't withdraw.
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