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When must you start to make 401(k) withdrawals?

By Gary Foreman

The New Frugal You
New Frugal You columnist Gary Foreman
Gary Foreman is a former financial planner who currently edits The Dollar Stretcher website and newsletters. He writes "New Frugal You," a weekly Q&A column about frugal living, for

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Question for the expert

Dear New Frugal You,
I'm 70 and will turn 71 on July 24. Should I have already been taking money out of my 401(k)? I'm also retiring in July. What are my options? -- Going Golfing

Answer for the expert

Dear Going Golfing,
All together now: Happy birthday to you, happy birthday to you... Did you get a gold watch for your retirement? For your birthday? Of course, what would you need with a watch if you're just going golfing?

For years, you've been diligently putting money into your 401(k) retirement account. Each quarter, you've checked the statement in the hope that your investment choices would increase in value. Seems like now you should be allowed to go golfing without having to worry about your finances. Unfortunately, you can't just book a tee time. You're right. You're facing a required withdrawal from your 401(k) plan.

Here's the scoop, in legalese: The required beginning date is April 1 of the first year after the later of the following years:

  • Calendar year in which the participant reaches age 70 1/2.
  • Calendar year in which the participant retires.

So what's this mean for you? You turned 70 1/2 on January 24, 2010. So you need to make a withdrawal by April 1, 2011.

The plan administrator is required to determine the minimum amount that must be withdrawn. You can get a pretty good idea of how much you'll need to withdraw by dividing the value of the account by your life expectancy.

The money withdrawn will be taxable income. Normally, you'd want to make the withdrawal after December 31 to delay the taxes for a year. But with tax rates rising next year, you may find it's better to take the money out beginning this year. You will want to run both scenarios through tax software or ask a CPA to do the calculation for you.

There are also some special rules that could apply. If your wife is 10 or more years younger than you are, the required withdrawal would be based on your combined life expectancy. Also, you may choose to take all of the money out in a "lump sum" distribution. Special tax rules will apply in that case.

So before you tee off, do all the calculations and be prepared to make the 401(k) withdrawal. Failure to make the required minimum distribution is worse than a penalty stroke. It's a 50 percent tax rate!

See related: Don't use 401(k) to pay back taxes, Getting financially fit at 50 isn't too late 

For more than 35 years, Gary Foreman has worked to help people get the most for their money. Prior to founding The Dollar, he was a financial planner and purchasing manager. Gary began The Dollar Stretcher website and newsletters in April 1996. Today the website features more than 6,000 articles on different ways to live better for less. Gary has been interviewed by The Wall Street Journal, The Nightly Business Report, USA Today, Reader's Digest and other newspapers and magazines. Gary answers a question about a budgeting or saving issue from a reader each week. Send your question to The New Frugal You.


Published: July 8, 2010

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