Why does the IRS require these withdrawals?
The IRS requires you to take out this money to protect against people using a retirement account to avoid paying taxes. These distributions from your retirement account are taxed at your current income tax rate based on the amount you withdraw. But if you fail to withdraw the RMD by the applicable deadline, the amount not withdrawn is subject to a 50% penalty! So make sure you take out the right amount.
In fact, many advisors will encourage you to set up an automatic withdrawal plan, so you don't miss an RMD. You can use RMD money to build your legacy and the estate that you plan to leave behind. This can include contributions to a retirement fund for someone else, purchasing a life insurance policy, or an education savings plan for your grandchildren. You also have a few alternate options like keeping your money working for you by reinvesting your withdrawal or making a qualified charitable contribution (QCD) using your RMD.
Luckily you don't have to figure this all out on your own. If you need help staying on top of accounts and maximizing your retirement plan, ask your financial advisor or tax professional to help figure out the correct amount and strategy for you.
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