What is a Required Minimum Distribution (RMD)?
When you reach the age of 70 ½ the IRS requires that you start taking distributions from your qualified retirement accounts (IRA accounts, 401ks, 457 plans or other tax-deferred retirement savings plans like a TSA, SEP or SIMPLE). This is called a required minimum distribution, often referred to as an RMD. You are NOT required to take minimum distributions from a ROTH IRA.
If you are still working and contributing to your employer sponsored retirement plan you will have to check with your plan to see if you will be required to take distributions at age 70 1/2.
When must I start taking Required Minimum Distributions?
Your first required minimum distribution must occur by April 1st of the year after you reach age 70 ½.
Example: Bob’s birthday is in February, thus he turns 70 ½ in August. His first distribution must occur by April 1st of the following year, although he could take this distribution in the current year. If Bob waits until April 1st of the year following the year he turns 70 ½ he will have to take a required minimum distribution for both years. His decision to wait and take two distributions in the second year, or take his first distribution in the year he turns 70 ½ would be made based primarily on his tax situation.
What amount must I withdraw as a Required Minimum Distribution?
The amount of your required distribution is based on two things: your prior year’s December 31st account balance, and an IRS table based on your age.
You use your age as of your birthday in the year of your distribution. So if you are taking a distribution in 2014, use the age that you attain on your birthday that occurs in 2014.
For your reference the first twenty years (covering distributions for ages 70-90) of the most commonly used table, the Uniform Life Expectancy table, is listed at the bottom of this article. To calculate required distributions for someone over age 90, reference the complete Uniform Lifetime table on the IRS website.
If you have a spouse who is ten years younger than you, or you are taking distributions as a non-spouse beneficiary of an IRA account, than use an alternate table at one of the links below:
- Joint And Last Survivor Table- Use if your spouse is ten years younger than you.
- Single Life Expectancy Table - Use if you are taking distributions as a non-spouse beneficiary.
Calculating Your Required Minimum Distribution
Take your prior year’s December 31st IRA account balance, look up your age on the appropriate table, and divide your account balance by the factor (remaining distribution period) based on your age.
Example: Bob had $100,000 in his IRA on December 31st of the prior year. Bob is 70 and decides to take his first distribution in the year in which he turns 70 ½.
- $100,000 / 27.4 = $3,649.63
This is the amount Bob must withdraw for the calendar year in which he turns 70 ½.
Try an online RMD calculator to estimate your current or future year's required minimum distribution.
Penalty For Not Taking A Required Minimum Distribution
The penalty for not taking a required minimum distribution is a tax of 50% on the amount that was not withdrawn in time.
For additional information on required minimum distributions see:
IRS Retirement Planning Facts Regarding Required Minimum Distributions
1st 20 Years Of The Required Minimum Distribution Table
|First Twenty Years Of The
Required Minimum Distribution Table (Uniform Lifetime)