Your taxes: 401(k) required minimum distributions

By Ryan Derousseau, Money magazine


(MONEY Magazine) -- Question: I turn 70½ in February and must begin taking required minimum distributions from my 401(k). Do I have to take a second RMD when I turn 71 later this year? If so, how can I minimize taxes? -- Allen Metz, Sun Lakes, Ariz.

Answer: Actually you don't have to take any distributions from your 401(k) this year; IRS rules allow you to delay your first RMD until April 1 of the year after you turn 70½.

If you choose to delay, you will have to schedule two withdrawals next year: one to make up for 2011's payment and one for 2012.

Tax-wise, if getting two payments in a single year would push you into a higher bracket, you're probably better off spreading them out, says Abe Schneier, senior technical manager at the American Institute of Certified Public Accountants.

But deferring could make sense if you want to give your investments more time to grow or expect your tax rate to be lower in 2012 (say, if you plan to retire this year).

Whatever you do, don't forget to withdraw by the deadline; unclaimed required minimum distribution funds are taxed at a 50% rate. To top of page

Frontline troops push for solar energy
The U.S. Marines are testing renewable energy technologies like solar to reduce costs and casualties associated with fossil fuels. Play
25 Best Places to find rich singles
Looking for Mr. or Ms. Moneybags? Hunt down the perfect mate in these wealthy cities, which are brimming with unattached professionals. More
Fun festivals: Twins to mustard to pirates!
You'll see double in Twinsburg, Ohio, and Ketchup lovers should beware in Middleton, WI. Here's some of the best and strangest town festivals. Play
Overnight Avg Rate Latest Change Last Week
30 yr fixed3.98%4.08%
15 yr fixed3.09%3.11%
5/1 ARM3.20%3.22%
30 yr refi4.06%4.16%
15 yr refi3.17%3.20%
Rate data provided
by Bankrate.com
View rates in your area
 
Find personalized rates:
Index Last Change % Change
Dow 17,810.06 91.06 0.51%
Nasdaq 4,712.97 11.10 0.24%
S&P 500 2,063.50 10.75 0.52%
Treasuries 2.34 0.02 0.86%
Data as of 9:06am ET
Company Price Change % Change
Comcast Corp 54.08 -0.30 -0.55%
GameStop Corp 37.86 -5.68 -13.05%
Gap Inc 38.46 -1.68 -4.19%
Dow Chemical Co 52.84 1.36 2.64%
Oracle Corp 41.44 0.52 1.27%
Data as of Nov 21

Sections

More than 600 Kmart workers signed a petition asking that the store allow employees to at least request the day off. More

Obamacare premiums for 2015 are going up, but you can likely find a cheaper one if you shop around. More

Regin is malware has been lurking in computers for as long as six years, according to Symantec. But experts don't know much about where it is from, what it does and who has been targeted. More

Obama doesn't have the authority to create a startup visa, but part of his reform announcement could include a workaround for entrepreneurs: 'parole status.' More

Nearly half of all Americans say there's a chance they'll have to work during a holiday between Thanksgiving and New Year's, according to a new poll. And one in four say they'll have to work whether they want to or not. More

Most stock quote data provided by BATS. Market indices are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer.

Morningstar: © 2014 Morningstar, Inc. All Rights Reserved.

Factset: FactSet Research Systems Inc. 2014. All rights reserved.

Chicago Mercantile Association: Certain market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved.

Dow Jones: The Dow Jones branded indices are proprietary to and are calculated, distributed and marketed by DJI Opco, a subsidiary of S&P Dow Jones Indices LLC and have been licensed for use to S&P Opco, LLC and CNN. Standard & Poor's and S&P are registered trademarks of Standard & Poor’s Financial Services LLC and Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC. All content of the Dow Jones branded indices © S&P Dow Jones Indices LLC 2014 and/or its affiliates.