Retirement distribution rules can be complex. We always recommend working with a trusted tax professional to help understand tax rules, but here are some answers to questions about RMDs.

For more detailed information about RMDs, check out this IRS webpage.

What are required minimum distributions (RMDs)?

RMDs are minimum amounts that you must withdraw annually from certain retirement savings plans once you’ve reached the mandatory age for making withdrawals.

The mandatory age at which you must begin taking RMDs from your traditional IRA depends on when you were born. The Setting Every Community Up for Retirement Enhancement (SECURE) Act of 2019 raised the age for RMDs from 70 ½ to 72 for individuals who turned 70 ½ after December 31, 2019. As a result:

  • If you were born before July 1, 1949, you must begin taking RMDs by April 1 of the year following the year you turn 70 ½. The CARES Act suspended RMDs for 2020, but was not extended for 2021. RMDs for 2021 must be taken by April 1, 2022.
  • If you were born after July 1, 1949, you must begin taking RMDs by April 1 of the year following the year that you turn age 72.

For each subsequent year after you begin taking RMDs, you must withdraw your RMD by December 31. The amounts you withdraw typically count as taxable income unless you already paid taxes on your contributions.

What if I don’t take any distributions, or if the distributions I take don’t meet the RMD amount?

You will be subject to pay a 50 percent excise tax on the amount not distributed.

What accounts utilize RMDs?

The RMD rules apply to all employer sponsored retirement plans, including:

  • profit-sharing plans 
  • 401(k) plans 
  • 403(b) plans 
  • 457(b) plans

The RMD rules also apply to traditional IRAs and IRA-based plans such as:

  • SEPs 
  • SARSEPs
  • SIMPLE IRAs

RMD rules apply to Roth 401(k) accounts. However, the RMD rules do not apply to Roth IRAs while the owner is alive. Roth IRAs do not require RMD withdrawals until after the death of the owner. If you have a Roth account in an employer-sponsored plan, the IRS recommends that you contact your plan sponsor or plan administrator regarding RMD information.

How is the amount of the required minimum distribution calculated?

Generally, a RMD is calculated for each account by dividing the prior December 31 balance of that IRA or retirement plan account by a life expectancy factor that IRS publishes in Tables in Publication 590-B, Distributions from Individual Retirement Arrangements (IRAs). 

When it comes to your retirement planning, it’s important to make investments that will help you reach your retirement goals. If you have questions about your retirement plans, we’d be happy to talk with you. Contact us about what you can do today to plan for your future.