What Are Required Minimum Distributions (RMD’s)?

When you reach the age of 70 & 1/2, Uncle Sugar (The IRS) mandates that you take a minimum withdrawal from your tax-deferred retirement accounts.
Why? So he can potentially tax that money!

In the year you turn 70 & 1/2 years old, you must withdraw the specified amount by April 1st of the following year.

In all subsequent years, the deadline is December 31st.

Which Accounts Require RMDs?

Traditional IRAs, SEP IRAs, SIMPLE IRAs, or retirement plan accounts.

“Roth IRAs do not require withdrawals until after the death of the owner.”
– IRS

How Much Am I Required To Withdraw?

The IRS produces Required Minimum Distribution tables and worksheets for withdrawing the proper amount.

You will select the distribution period next to your age in any given year and then divide your retirement account balance in the previous year, by the distribution period.
Sound confusing? Don’t worry, the IRS has it with step by step instructions on their website. RMD distributions are subject to change, so it is a good idea to pull annual distribution amounts from this page every year.

Which Worksheet Should I Use?

There are two RMD worksheets:

  • People with spouses ten years younger than them as their sole beneficiary
  • Everyone else who isn’t described in the previous bullet

The IRS separates these worksheets on their website (see page above).

Can I Withdraw More Than My Minimum Distribution?

Yes.

Do I Have to Pay Taxes on IRA Withdrawals?

Maybe not. The withdrawal is considered taxable income, but if you are in a phased-retirement situation, you may not owe any taxes. For example, one of my clients retired early and was living off of the proceeds from the sale of his home. However, he had neither started social security benefits, nor taken any money out of his 401(k). He had no income report.

This allowed us to take advantage of his standard deduction and personal exemption to convert tax deferred money into tax-free Roth money!

What Happens If I Forget?

The IRS will charge you a penalty fee. However, we can do all of the paperwork for you ahead of time and keep you on schedule – Call Today For Details: (512) 638-9499.

More questions about RMDs? Visit The IRS for additional answers to common questions.