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Greetings, Hebiethek, and welcome. You asked:

<<At age 70 1/2, I will have to start withdrawing the monies from the 401K. According to the IRS tables, I have 16 years to do this using their percentages. This would bring me to age 86. If I use their percentages, but have a large rate of return on my monies, it is probable that at age 86, I will have as much money in the account as I had at age 70.
What happens to this money at age 86? Do I have to take a lump sum distribution (raising my tax bracket astronomically) or can I keep taking money out at the same rate? If I have to take a lump sum, then wouldn't it be better to take a larger amount each year, pay the taxes, and invest the rest in products that are not subject to IRS rules? >>

Your plan will specify the authorized method(s) you must use for taking minimum required distributions (MRD) at age 70 1/2. It may allow a recalculation method and it may not. If it does, when you reach age 86, you just use the life expectancy at that age to determine the MRD required for that year. If it doesn't and it only allows a term certain method, then (using your example of a 16-year remaining life expectancy) in the first year you will take 1/16th of the balance; the second year 1/15th; the third year 1/14th, etc. When you reach age 86, you will take all that's left in the account.

Regardless of which method you use, you will pay income taxes on the MRD based on the amount taken each year. In either method (and assuming the account continues making a great return), you will be taking an increasing amount each year based on your shorter life exectancy each year. In the term certain method, you will finally exhaust the account at age 86. In the recalculation method, you will never exhaust the account. The recalculation method generally has less of an income tax impact during your lifetime.

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