Understanding Retirement Distribution: Making sure your retirement funds go to you

“As much as 70 percent of your hard-earned retirement funds can be eaten up by income, estate and state taxes,” says IRA guru Ed Slott, author of the retirement-planning books “Fund Your Future: A Tax-Smart Savings Plan in Your 20s and 30s” and “The Retirement Savings Time Bomb … and How to Defuse

If you think saving for retirement is complicated, try figuring out how to withdraw retirement funds while minimizing taxes.

That’s money that most people would prefer to keep in their own pockets. But how exactly can it be achieved?

Follow the Rules for RMD’s

RMD stands for required minimum distribution, and once you hit age 72, you’ll have to start taking this minimum amount of money from many retirement accounts, such as a traditional IRA or 401(k) plans.
You must take RMDs annually by April 1 of the year after you turn 72 and by Dec. 31 in subsequent years. In other words, if you turn 72 in 2022, you have until April 1, 2023, to take your first RMD.
The penalty for not following the rules is severe. Failure to make on-time RMDs triggers a whopping 50 percent excise tax.

That’s true if you underpay, too. Let’s say your RMD for the year is $20,000 but you take only a $5,000 distribution because of a miscalculation. The IRS will levy the 50 percent penalty — in this case $7,500, or half of the $15,000 you failed to withdraw.
When you calculate your RMD, be aware that it will change from year to year. That’s because it’s determined by your age, life expectancy (the longer it is, the less you have to take out) and account balance, which will be the fair market value of the assets in your accounts on Dec. 31 the year before you take a distribution.