The Internal Revenue Service (IRS) has adopted rules which allow each of us to set aside part of our wages in tax deferred accounts for our retirement. Once we start withdrawing from the retirement accounts, we will pay income tax on the amount withdrawn. We may also be charge “extra” taxes depending on how much in the account is distributed and under what circumstances.
The most important thing to remember when including your retirement plans in your estate planning calculations is that the tax rules are such that when you die you will lose virtually all of your retirement assets to Uncle Sam. On your death, your plan assets will be subject to income tax, excise tax, and perhaps, estate tax, which can use up 70% of your plan assets or more. You can see the importance of coordinating your retirement and estate plans!
WHEN SHOULD YOU TAKE DISTRIBUTIONS FROM YOUR RETIREMENT PLANS?
As you may know, once you reach age 59 1/2, you are eligible to receive distributions from your retirement plan. You may withdraw money from your plan or leave it there until you reach 70 1/2 when you must take money out of the plan. The age at which you are required to take distributions is called the required beginning date. The amount which are you required to take out of the plan is called required minimum distribution.
Your financial advisor or accountant will be able to help you figure out how much you are required to take.