You cannot keep funds in your retirement accounts forever (unless they are certain ROTH accounts). Eventually, you will have to take required distributions. These required distributions from retirement accounts are taxable income to you and cannot be rolled over into another tax deferred account.
In most cases, you must begin taking distributions from your IRA account or qualified plans (such as a 401(k) or 403(b) plan) by April 1st of the year following the year in which you turn 70 ½ years of age. If you are still working, and you are not a 5% or greater owner or your qualified plan permits it, you can postpone your distributions until the year you retire. No such postponement is available with IRA accounts.
You reach age 70 ½ on the date that is exactly six months after the date of your 70th birthday. If your 70th birthday is June 30th, you turn 70 ½ on December 30th and you must begin taking distributions from your retirement account(s) by April 1st of the following year. If your birthday is July 1st, you reach 70 ½ on January 1st of the following year and you must begin taking distributions by April 1st of the year two years after your 70th birthday.
After the initial distribution, you must take distributions annually by December 31st of each year. If you waited and took your initial distribution in the year following the year in which you reach 70 ½ you will be required to take two distributions for that year, one for the year you turned 70 ½ (your initial distribution) and one for the following year (your annual distribution).
You must take at least the required minimum distribution (“RMD”). You can take more if you wish. The RMD is determined by dividing the market value of all of your accounts as of December 31st of the preceding year by the distribution term that corresponds to your age and marital status in the IRS tables provided in IRS Publication 590.
If you have more than one IRA, you must determine the RMD for each account, but can aggregate the RMD amounts and withdraw the total for any or all of your accounts. With a qualified plan, the RMD is calculated and withdrawn from each plan separately.
Failure to withdraw a RMD, failure to withdraw the full required amount, or failure to take the RMD by the deadline will result in a penalty equal to 50% of the required minimum distribution less any amounts actually taken by the deadline. The penalty can only be waived due to reasonable error.
Now is the time to make sure you take the correct RMD if you turned 70 ½ during 2014.