Boomers, It’s Time to Spend—and Pay Taxes on—Your 401(k)

What the IRS giveth, the IRS taketh away.

At age 70½, the bill comes due on all those tax-deferred savings accounts we’ve been building, and this week the oldest baby boomers will begin to reach that finish line—with many millions more to follow.

Those waves of retirees will be required to start pulling money from their IRAs and 401(k)s. Following an Internal Revenue Service formula, these annual withdrawals can push you into a higher tax bracket, so financial planners put a lot of energy into building strategies to minimize the tax bite.

To be most effective, you need to plan far in advance of the magic age. So anyone with sizable savings may want to get familiar with how these required minimum distributions (RMD) work—and the options for handling them—well before they have to crack open the nest egg.

To get a jump-start on what's involved, here are some quick rules of the road: