Do I Have to Draw From My Retirement at 70.5 When I'm Not Retired?

If you fail to take a required minimum distribution, the IRS slaps you with a 50 percent penalty.

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Qualified retirement accounts like individual retirement arrangements, 401(k)s and 403(b)s offer a host of tax benefits, including tax-sheltered growth, so it's no surprise that you want to leave the money in as long as possible. Whether you have to withdraw from your retirement when you're 70 1/2 years old depends on the type of retirement plan you have and, if it's an employer-sponsored plan, the terms of the plan.

Tax-Deferred IRAs

Tax-deferred IRAs (including traditional IRAs), simplified employee pension IRAs and savings incentive match plans for employee IRAs all require you to start taking required minimum distributions in the year you turn 70 1/2 and continuing each year you're alive. There's no exception to the requirement even if you're still working full-time and have no need to tap into your retirement nest egg, even if it's a SEP IRA or a SIMPLE IRA that's sponsored by your employer. So, if you're 70 1/2, you must take a required minimum distribution from your tax-deferred IRA. However, if you're still working, you can continue to contribute to a SEP or SIMPLE IRA.

Roth IRAs

Roth IRAs, on the other hand, don't require you to withdraw any money from your account at 70 1/2, regardless of your employment situation. In fact, you can leave the money in the Roth IRA as long as you're alive. Only after you've died and your heirs take over your Roth IRA are they required to take minimum distributions from your account.

IRS Employer Plan Rules

The Internal Revenue Code allows you to delay distributions from non-IRA plans, like 401(k)s and 403(b)s, until the later of the year you retire or the year you turn 70 1/2 years old. So, if you're still working at age 70 1/2, the IRS won't come knocking at your door telling you to take the money out. However, there is an exception -- if you own 5 percent or more of the business that sponsors the plan, you must start taking required minimum distributions when you hit 70 1/2, even if you're still working.

Employer Plan Discretion

Just because the IRS permits you to delay your required minimum distributions from a non-IRA plan because you haven't retired doesn't mean your plan terms will do the same. The option to delay required minimum distributions is just that -- an option that employer plans don't have to allow you to use. So, before you go skipping your required minimum distributions because you're still employed, check with your plan administrator to make sure your plan doesn't require distributions.