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My Age is 70½ — Now What?

L. Ronald Blair, CFP®, CPCU, AAMS, RFC

Many of our clients don't have a good grasp on what happens at age 70½ under government regulations with regard to IRAs and "employer sponsored" retirement programs such as the Thrift Savings Plan (TSP) or 401(k)'s:

  • The law indicates owners of traditional IRAs and TSP and 401(k) participants must start withdrawing from those accounts the year the participant (owner) turns age 70½ or April of the year following the 70½.  This is the Required Minimum Distribution (RMD) that we all must begin.  There are two issues of consideration:  
    1. If the TSP or 401(k) participant is still working, the withdrawal is not required. However, the IRA account holder must withdraw even if working.
    2. If the individual elects to delay the first withdraw to April 1 of the year following, that person must take two withdrawals in that year.
  • While the account holder is in their 70s, the Required Minimum Distribution (RMD) withdrawal is in the 4% to 5% range of the account values on December 31 of the previous year. For example, if the individual is age 72  in 2013, the account values would be as of December 31, 2012.  There is a IRS RMD table that is used with the account balance to annually determine the factor for the withdrawal calculation.
  • The penalty for not withdrawing or withdrawing incorrectly is 50% of the amount that should have been withdrawn.
  • The values of all IRAs accounts can be accumulated, and the withdrawal can be taken from only one of the IRA accounts, if desired. This is not so, however, with the TSP and 401(k) plans. The necessary total withdrawal for TSP and 401(k) plans is calculated on the total value of all those plans, but the withdrawals must come from each plan.
  • The TSP will only allow one partial withdrawal in a lifetime. Therefore, the first required withdrawal could come from the TSP; but thereafter, the required withdrawal could not be taken in a lump sum TSP.
  • Roth IRA's have no requirement to withdraw; the Roth TSP does require a withdrawal.  The Roth TSP, however, could be rolled into a Roth IRA to solve that issue -- with no penalties, fees or taxes.

Posted:  02/11/2013

About the Author

L. Ronald Blair is a Certified Financial Planner, Chartered Property Casualty Underwriter, Accredited Asset Management Specialist, Certified Senior Advisor, Registered Financial Consultant and owner of Personal Benefit Financial located at 870 Kipling St #A Lakewood, CO 80215 - Tel: 303-238-5123.  He is also a registered representative with Royal Alliance Associates Inc., member FINRA/SIPC.

Sharla Rountree, CFP® and L. Ron Blair, CFP®, AAMS,offer Securities and Advisory Services through Royal Alliance Associates, Inc., Member FINRA/SIPC . In this regard, this communication is strictly intended for individuals residing in the states of AK, AR, AZ, CA, CO, CT, FL, GA, HI, IA, ID, IL, IN, KS, MD, MN, MO, NC, NH, NM, NV, NY, OH, OK, OR, PA, SD, TX, UT, VA, VT, WA, WY. No offers may be made or accepted from any resident outside the specific state(s) referenced.