Olde Hornet
Well-Known Member
Long article - interesting read.
Only 15% of private-sector workers now participate in a traditional defined-benefit pension plan (three out of every four government workers do), according to the Pension Rights Center. Yet nearly two out of every three Americans polled earlier this year think a traditional pension plan does a better job of ensuring retirement security than do defined-contribution plans like 401(k) plans or IRAs.
Again, the first one the federal government does for you, albeit indirectly. Yes, you can use that big (or not so big) pot of money in your IRA or company 401(k) any way you want once you turn 59½ (although you will pay income taxes on any money you withdraw). But you should think of it not as a big lump sum to tap into when you need cash, but as a source of funding for your personal pension.
Here’s where the government comes in. The year after you turn 70½, you must withdraw a certain percentage of all your traditional retirement plan assets every year. It’s called the required minimum distribution, or RMD.
The IRS offers a table with a life expectancy factor by which you divide your total balance of all traditional IRAs and 401(k) accounts—including SEP IRAs and solo 401(k) plans—as of the previous Dec. 31. At age 70, it’s 27.4 years and at 80 it’s 18.7 years. Notice how as you age, the denominator shrinks, which means the percentage of your traditional retirement funds you must withdraw rises. (It starts off at 3.6% or so, but you can withdraw more, if you’d like, and pay taxes on it for the privilege.) That’s because the IRS wants to get back as much of the money you accumulated tax-free over all those years as it can.
MSN
www.msn.com
Only 15% of private-sector workers now participate in a traditional defined-benefit pension plan (three out of every four government workers do), according to the Pension Rights Center. Yet nearly two out of every three Americans polled earlier this year think a traditional pension plan does a better job of ensuring retirement security than do defined-contribution plans like 401(k) plans or IRAs.
Again, the first one the federal government does for you, albeit indirectly. Yes, you can use that big (or not so big) pot of money in your IRA or company 401(k) any way you want once you turn 59½ (although you will pay income taxes on any money you withdraw). But you should think of it not as a big lump sum to tap into when you need cash, but as a source of funding for your personal pension.
Here’s where the government comes in. The year after you turn 70½, you must withdraw a certain percentage of all your traditional retirement plan assets every year. It’s called the required minimum distribution, or RMD.
The IRS offers a table with a life expectancy factor by which you divide your total balance of all traditional IRAs and 401(k) accounts—including SEP IRAs and solo 401(k) plans—as of the previous Dec. 31. At age 70, it’s 27.4 years and at 80 it’s 18.7 years. Notice how as you age, the denominator shrinks, which means the percentage of your traditional retirement funds you must withdraw rises. (It starts off at 3.6% or so, but you can withdraw more, if you’d like, and pay taxes on it for the privilege.) That’s because the IRS wants to get back as much of the money you accumulated tax-free over all those years as it can.