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Life Planning Center > Getting Ready To Retire / Retired
Distributions from Your Retirement Plan
  • Introduction
  • What Initiates a Distribution?
  • Five Dates You Should Know
  • Selecting a Distribution Option
  • Deciding on a Payout Option
  • Annuity Form of Payout
  • Advantages and Disadvantages of Taking an Annuity
  • Taking a Lump-Sum Distribution: Know Your Options
  • Annuity vs. Managing Your Own Retirement Assets
  • Advantages and Disadvantages of a Lump-Sum Distribution
  • The Roth IRA–How Does It Fit In?
  • Making the Decision: Annuity or Lump-Sum?
  • Taxation of Distribution Options
  • Rollover into a Traditional IRA
  • Advantages and Disadvantages of Rollover to a Traditional IRA
  • Annuity Payouts
  • Early Distributions
  • Should You Defer Your Retirement Plan Distribution as Long as Possible?
  • Distributions Following Death

Should You Defer Your Retirement Plan Distribution as Long as Possible?

If your current income tax rate is higher now than what you anticipate in the future, you may want to consider deferring your retirement plan distribution as long as possible. One way of deferring your distribution is to roll it over to a traditional IRA or another qualified plan; or some employers allow you to leave it in their plan. Not only will you pay less tax, but the amount in the plan will continue to grow tax-deferred. However, be careful to take into consideration the distribution penalty taxes discussed below. If these penalty taxes apply, you may need to accelerate distributions rather than defer distributions.

Minimum Distribution Requirements

There comes a point in your life when it is mandatory that you begin taking distributions from your retirement accounts. That magic age is 72 (70½ if you reach 70½ by January 2020), when something called minimum distribution requirements kick in. You can postpone distributions from your current employer's retirement plans, (but not from your traditional IRA) if you are still employed even if you are older than 72 (70½ if you reach 70½ by January 2020), (but not if you are a 5% owner—that is, an owner of more than 5% of your company). Distributions from a Roth IRA can be postponed beyond age 72 (70½ if you reach 70½ by January 2020),regardless of whether you are employed or not.

You are generally required to take minimum annual distributions from all your qualified retirement plans, 403(b) plans, Section 457 plans, and traditional IRAs no later than April 1 of the year following the year in which you reach age 72 (70½ if you reach 70½ by January 2020. This doesn't mean you have to take all the money out at once. The required minimum distribution for each year generally equals the retirement plan account balance as of December 31 of the previous year, divided by the applicable life expectancy. The applicable life expectancy is set out in tables published by the IRS, based on your age or the ages of you and your spouse if your spouse is more than ten years younger than you, if that spouse is the sole beneficiary. Note: You can take more than the minimum.

Distributions for following years must be made by December 31 of each year. For example, if you are retired and reach age 72 (70½ if you reach 70½ by January 2020 this year, you must begin receiving distributions by April of next year. Regardless of whether you delay your current year distribution, you must take next year's distribution by December 31 of next year. This will force you to include, in next year's taxable income, required distributions for both this year and next year.

IMPORTANT NOTE: If the distribution you take is less than the minimum amount required, you will be subject to an excise tax totaling 50% of the difference between the required distribution and the amount you withdrew. For example, if you took a distribution of $10,000 and should have taken $20,000, then the excise tax would be $5,000 (the shortfall of $10,000 x 50%). So, remember to take at least the minimum distributions or you could stand to lose quite a bit of money.

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Securities and advisory services are offered through LPL Financial (LPL), a registered investment advisor and broker-dealer (member FINRA/SIPC). Insurance products are offered through LPL or its licensed affiliates. Franklin Mint Federal Credit Union and Mint Wealth Advisors are not registered as a broker-dealer or investment advisor. Registered representatives of LPL offer products and services using Mint Wealth Advisors, and may also be employees of Franklin Mint Federal Credit Union. These products and services are being offered through LPL or its affiliates, which are separate entities from, and not affiliates of, Franklin Mint Federal Credit Union or Mint Wealth Advisors. Securities and insurance offered through LPL or its affiliates are:

Not NCUA Insuredor Any Other Government Agency No Credit Union Guarantee Not Credit Union Deposits May Lose Value

The LPL Financial Registered Representatives associated with this site may only discuss and/or transact securities business with residents of the following states: NJ, PA, NY, DE, AZ, MI, FL, MD, TX, VA, GA, NC.



Financial Learning Center content created by TrueBridge, Inc. The information provided is based upon sources and data believed to be accurate and reliable. The content contained herein is intended for information and illustrative purposes only, should not in any way be construed as a personal recommendation, and should be used in conjunction with individual professional advice.

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