IRAs – Required Minimum Distribution

By Myra O’Dell

to doAs you make your list of things to do before the end of the year, don’t forget to take your required minimum distribution (RMD) if you have an IRA (including SEP, SIMPLE and SARSEP IRAs) and will reach 70 ½ or over by the end of the year.  You may also have to take an RMD if you have a defined contribution plan such as a 401(k) or have inherited a retirement account, but those rules are slightly different so I will focus on IRAs in this post.  Also note that Roth IRAs do not require withdrawals until after the death of the owner.

For any year, the RMD is the account balance as of the end of the immediately preceding calendar year divided by a distribution factor from the IRS’s Uniform Lifetime Table.  The beginning date for your first RMD is April 1st of the year following the calendar year in which you reach age 70 ½.  For each subsequent year, you must withdraw your RMD by December 31st.  Failing to take your RMD may cause you to pay a 50% excise tax on the amount not distributed as required.

If you have more than one IRA, you must calculate the RMD for each IRA separately each year.  However, you may aggregate your RMD amounts for all of your IRAs and withdraw the total from one IRA or a portion from each of your IRAs.  In other words, you do not have to take a separate RMD from each IRA.  Also, you may withdraw your annual RMD in any number of distributions throughout the year as long as you withdraw the total minimum amount by the deadline.  And remember, you can always take more than the RMD amount although you cannot apply excess withdrawals toward future years’ RMDs.  Just keep in mind that your withdrawals will be included in your taxable income except for any part that was taxed earlier such as a non-deductible contribution.

If you have any questions about the rules regarding RMDs, please contact us and we will be happy to discuss it with you.

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