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Distributions may be required by the IRS

On Behalf of | Dec 28, 2018 | Income Taxes

At some point, Georgia retirees must start taking distributions from their retirement savings accounts. The IRS mandates that individuals must start taking these distributions starting in April of the year after turning age 70 1/2. Furthermore, they must calculate and abide by their required minimum distribution. This amount is based on how long a person is expected to live as well as their account balance at the end of the previous year.

There are some exceptions to this rule. For instance, no distributions need to be made from a Roth IRA before the original owner passes away. Additionally, those who are 70 1/2 or older may receive an exception if they are still working and have an employer-based retirement plan. When making a distribution from an IRA, the amount is based on the balance of each one that a person has. However, the distribution itself can come from any one account or combination of accounts.

Taxpayers may glean a variety of benefits from a retirement account during their working years and after retirement. For instance, contributions to an IRA or 401(k) are not taxed until a distribution is made in retirement. In the meantime, they will grow tax-free until a withdrawal is made. If an individual creates a Roth account, contributions are made from after-tax dollars.

However, the contributions will also grow tax-free until a withdrawal is made. Furthermore, it may be possible to take back any money contributed to the account prior to age 59 1/2 without a penalty. There is also generally no need to pay taxes on distributions made after a person reaches 59 1/2. Those who have questions about IRS rules related to retirement accounts may benefit from seeking the counsel of an attorney or an enrolled agent.