Regardless of your age, you must file a Form 1040 and present the IRA payout amount. Regardless of your age, your earnings are taxable if you fail the five-year test. This is true even if your income is exempt from punishment. You can transfer your retirement fund to a rollover IRA with no income taxes or early distribution penalties.
IRA rollovers are tax-exempt if you transfer the money from one account to another or if you deposit the contribution you deposited into a rollover account within 60 days of the withdrawal. Retirement plan participants and IRA owners, including owners of SEP IRAs and SIMPLE IRAs, are responsible for withdrawing the right amount of RMDs from their accounts on time each year, and they face heavy penalties if they don’t take RMDs. If you convert a traditional IRA to a Roth IRA, you’ll have to pay taxes when you switch over, but then you’ll never have to worry about paying taxes on that IRA again for qualified withdrawals, even if future tax rates are higher. An IRA owner must calculate the RMD separately for each IRA he or she owns, but can withdraw the total amount from one or more IRAs.
So how much do you need to withdraw from your IRA? The minimum withdrawal rules for the IRA are based on life expectancy. The RMD rules also apply to traditional IRAs and IRA-based plans, such as SEPs, SARSEPs, and SIMPLE IRAs. If you have multiple IRAs, you’ll need to calculate each account individually. However, you can withdraw your entire RMD amount from an IRA or a combination of IRAs. While traditional IRA withdrawal rules allow you to defer your first required minimum payout from your IRA until April 1 of next year, you may want to make your first withdrawal in the first year you’re eligible.
Although the IRA custodian or retirement plan administrator can calculate the RMD, the IRA or retirement account holder is ultimately responsible for calculating the amount of the RMD. You’ll need to calculate your RMD separately for each IRA, but you have the flexibility to get your entire RMD amount from either a single IRA or a combination of IRAs. Each traditional IRA that you convert to a Roth IRA has its own five-year holding period to avoid a penalty for early withdrawals.
