Planning for your retirement is essential, and it is entirely possible that you have amassed savings in your bank account and investments, in addition to your retirement funds. Your retirement funds include the traditional IRAs, SEP IRAs, SIMPLE IRAs, 401 (k), 403 (b) and 457 (b) plans, as well as plans for profit sharing and other defined contributions. Often, people do not want to touch their retirement funds until it is absolutely necessary. However, your retirement funds cannot be left dormant within your account. By the time you have reached 70 ½ years of age, you are obligated to begin taking withdrawals.

Every year, there is an amount that you need to withdraw from your account, and that is referred to as your required minimum distribution. This is a mandatory requirement from the IRS, and is an essential part of planning for your retirement.

Your First Withdrawal

As you plan to take your first withdrawal, you should understand how to calculate your age and determine when you turn 70 ½. This will affect the year in which you take your first withdrawal. If your 70^th birthday falls before the 30^th of June then you will receive your first required minimum distribution (RMD) by the 30^th of December in the same year. However, if you are born from the 1^st of July onwards, your RMD will be available the following year by the first of April. The distribution is calculated based on your age as at the 31^st day of December.

After the first withdrawal, you will be required to collect your RMD by the 31^st of December each year.

Your Withdrawal Amount

The amount to withdraw as a minimum on an annual basis is calculated by taking the account balance as at the end of the previous year, and dividing this by the specified distribution period which is determined using the IRS Uniform Lifetime Table. The calculation will differ if your spouse is younger than you by ten or more years and is also the sole beneficiary. In this instance, use the Joint Life and Last Survivor Expectancy Table. On the IRS site, it is possible to access worksheets that can calculate the amount required.

Your Tax Amount

All the withdrawals that you take out are treated as taxable income. The tax is applied to the year that there has been a withdrawal, and may include individual, state and local taxes.

Your Penalties

As long as you take your first withdrawal by the time you are 70 ½ then you are safe from penalties. Should you fail to take your minimum distribution at all, or take an amount that is lower, then you will be required to face an excise tax penalty which amounts to 50% of the amount which you did not withdraw.

Pay attention to your retirement funds including the required minimum distribution and plan accordingly. This will save your from anxiety, and ensure that you have enough funds to help you remain comfortable during your retirement years. Getting insight from a tax advisor could prove invaluable.