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12.27.19

Quick Lesson about Required Minimum Distributions

Your retirement accounts cannot just sit there indefinitely. You must withdraw a required minimum distribution (RMD) from your retirement account(s) each year, and Uncle Sam wants the tax dollars that are generated from taking these distributions. (Of course, you can take out more if you wish.)

When must someone begin taking distributions?

Individuals must begin taking distributions:

  • From an individual retirement account (IRA), which includes traditional IRAs, Simplified Employee Pension (SEP) IRAs or Savings Incentive Match Plan for Employees (SIMPLE) IRAs, when the individual reaches age 72 (or for persons who reached 70 ½ before December 31, 2019, 70½).
  • From qualified employer retirement plans, which include 401k plans, 403b plans or defined contribution plans, when the individual reaches age 72 (or for persons who reached 70 ½ before December 31, 2019, 70½) or if later, the year of the individual’s retirement.
    • Exceptions apply to more than 5% owners of the business.

When do distributions have to take place?

Distributions from retirement plans are required as follows:

  • The first distribution from an IRA must take place by April 1 following the year you reach 72 (or for persons who reached 70 ½ before December 31, 2019, 70½).
  • The first distribution from an employer plan must take place by April 1 following the year you reach 72 (or for persons who reached 70 ½ before December 31, 2019, 70½) or if later, the year the individual retires.
  • Subsequent distributions must take place by December 31 of each year. If you wait until April 1 following the year you turn 72 (or for persons who reached 70 ½ before December 31, 2019, 70½) to take first distribution, then you will have to take your current year (i.e., second) distribution by December 31 of the same year.

How are the amounts calculated?

The RMD is determined for each taxpayer individually by:

  • Determining the fair market value of all retirement accounts as of December 31 of the preceding year.
  • Finding the factor corresponding to your age in the current year using the Uniform Lifetime Table.
  • Dividing the total fair market value for all retirement accounts by the factor.

How can distributions be taken?

The RMD for a given type of retirement account can be:

  • Distributed from one or multiple accounts. An RMD for a qualified retirement plan must be calculated separately for each such plan and the distribution must be withdrawn from such plan.
  • Multiple distributions occurring throughout the year, as long as the full RMD is distributed by December 31.