By Curt Sheldon

One of the great things about the TSP, 401(k)s, and IRAs is the earnings in the account are not taxed when earned. The IRS wants the deferred taxes in those accounts, and while they'd really rather get them now, you can make them wait. In fact, you can make them wait until you're 70. But then it's time to pay the piper. Beware: It's not simple, and you're in danger of unforeseen financial consequences.

The first is when you actually start the distributions. Technically, you must begin taking distributions from your account the year you turn 70. This is called the Required Beginning Date (RBD). The law allows you to defer this first payment until April 1 of the year after your RBD. This can cause a problem, though. If you defer your first payment into the next year, you'll have to make two distributions that year: one for the year you turned 70 and one for the year after you turn 70. This could have unintended consequences, such as pushing you into a higher tax bracket or increasing your Medicare premiums (because they are based on your income).

Taking the distributions also can be dangerous, as it is easy to take them incorrectly. Not only are you required to take distributions, the law sets a Required Minimum Distribution (RMD). You are allowed to aggregate your IRAs if you have more than one IRA and take the combined amount of your individual RMDs from one IRA. This is not the case with employer-sponsored plans, such as the TSP. You must take an RMD from each employer-sponsored plan, and you can't take your IRA RMDs from your employer-sponsored plans.

Finally, exceptions are dangerous. If you are still employed at age 70 (and not an owner of the company), you are not required to take distributions from that employer-sponsored plan. That is not the case for your IRAs and employer-sponsored plans at locations where you are no longer employed. You must take distributions from those accounts. Make sure you don't confuse the two.

This article first appeared in Military Officer, February 2018.

Curt Sheldon, CFP®, EA, is a retired Air Force officer and fighter pilot. He is the author of Well and Faithfully Discharged:  Financial TTP for Military Retirement (CreateSpace, 2017). His last feature article for Military Officer was “Tax Traps,” February 2017.