It’s time for retirees to be sure they get out the money they need to in order to avoid a big tax bill.
“If you turned 70 1/2 this year, that means you were born after July of 1948, you have to start taking money out of those retirement accounts,” said Michael Devine with the Internal Revenue Service. “If you don’t take the Required Minimum Distribution, then you could be looking at a penalty of 50% of the amount that you didn’t take out.”
Roth IRAs don’t require distributions while the original owner is alive.
“We’re talking about the Traditional IRAs, Simplified Employee Pension plans, Savings Incentive Match Plans for Employees, lots of names for different kinds of IRAs,” said Devine. “You’re going to know these as a 401(k), a 403(b) or a 457(b). If you’ve been putting money away for retirement at work, you’ve probably got one of these plans.”
Those who turned 70½ in 2019 are allowed to wait until April 1, 2020, to take their first RMDs.
“If you have a lot of money in your retirement account and you really don’t need it, but you have to take it out or take that tax hit, you might do what’s called a qualified charitable distribution,” said Devine. “That’s where, let’s say that you’ve got $10,000 that you have to take out of your retirement account. That’s going to be a good tax bill anyway. Let’s say that you don’t need it all. You only need $6,000. You want to make a charitable contribution of $4,000.”
Check with your financial pro on specifics, but what you want to do is get a check cut directly to the charity of your choice without it passing through your hands at all. Then that portion won’t be taxed.