Solutions 4 Financial Independence: 10/18/18
Question (Mary from Grafton, WV) I am currently 69 and have several IRA accounts. I heard at 70 I need to do something with them. Does this mean I will have to cash them in?
John Halterman (Beacon Wealth Management) Answer: First of all Mary, what you’re taking about is the 70-and-a-half rule, which is basically called "required minimum distributions." If you have an IRA at age 70-and-a-half you basically have to start taking out money based on what we call the RMD tables. It's a table that the IRS has graded, so that you take out at least a certain amount of money. At this point, all of your money has grown tax deferred, so the IRS says "hey, I want a piece of that," and they only get taxes on distributions on IRAs, but I'll tell you this, you don't have to cash the whole thing out. The one thing I'll tell you is the distribution rates will be based on life expectancy, somewhere between 3 and 5%, at age 70-and-a-half. Now, you said you have multiple IRAs. One thing you have to understand is, it's based on the previous year’s value. So you have to take your total value, multiply it by the RMD tables, and that's the balance you have to take out from your IRAs. It doesn't matter whether it’s from one IRA or all of them proportionately, but you do have to meet the required minimum distributions. That's the 70-and-a-half rule that you're discussing.