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

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