Liz Weston: Confusion over retirement fund minimum distributions can cause costly mistakes

Dear Liz: When my wife turned 59.5, we implemented required minimum distributions on all of her retirement funds.

During the trial, the investment company representative explained that she was not required to take RMDs on these accounts as long as she was still working and making contributions to her 401(k) and 403(b) at work. With all the recent changes to these account types, is this still the case or has the law changed?

Answer: No pension fund required minimum distributions at age 59½. That’s the age at which people no longer have to pay penalties to access their retirement savings, not the age at which they must start withdrawing money.

The current age at which minimum distributions must begin in retirement is 73, rising to 75 for those born in 1960 and later. If your wife is still working at this point, she can remove RMDs from retirement plans sponsored by her current employer. RMDs are still required for other retirement accounts, such as: B. IRAs and 401(k)s or 403(b)s from a previous employer. The other RMD exception applies to Roth accounts, which do not have RMDs for the account holder.

In general, you want the money to stay in tax-deferred retirement accounts for as long as possible. Unnecessary distributions only increase your tax bill and can reduce the amount you have to live on later in life.

If your wife has already taken a distribution, she has 60 days to convert it into an IRA and avoid taxation.

Tax law can be confusing and mistakes can be costly. Please use this experience as an opportunity to hire a good tax professional who can answer your questions and ensure you don’t make another potentially costly misstep.

Liz Weston, a certified financial planner, is a personal finance columnist for NerdWallet. Questions can be directed to 3940 Laurel Canyon, No. 238, Studio City, CA 91604 or via the “Contact Us” form at