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Required IRA distributions

March 15, 2015
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Many clients have asked questions about the typical required minimum distribution (“RMD”) that must eventually be taken from nearly all retirement accounts. Here is some general information. Note that there are many special situations which I cannot cover here, but I will be happy to discuss them with you.

When must I begin to take my RMD?

You generally have until April 1 of the year following the calendar year you turn age 70½ to take your first RMD. In subsequent years, the deadline is December 31. It is important to note that if you take your first RMD between January 1 and April 1 of the year after you turn age 70½, you still need to take your second RMD by December 31 of the same year. Since these distributions are taxed as ordinary income, this may push you into a higher tax bracket. So, plan your first withdrawal carefully.

If you are 70½ and still working, you generally still must take your RMD; however, in some circumstances you may delay RMDs from any retirement plan for a current employer, such as a Keogh, 401(k), 403(b), or other employer-sponsored retirement plan account until you retire.

If you are still working and have other tax-deferred retirement accounts in previous employers’ plans, you must satisfy your RMD for those other accounts each year beginning when you reach age 70½. Roth IRAs are also an exception, as they are not subject to RMDs while the original account owner is still living.

Don’t forget to take your RMD as the IRS may assess a penalty equal to 50% of the amount of the RMD not taken.

When I begin to take the RMD, how must I do it?

If you have more than one traditional IRA, you must calculate the RMD for each IRA separately each year. However, you may aggregate your RMD amounts for all of your traditional IRAs and withdraw the total from one IRA or a portion from each of your IRAs. If you have qualified plan accounts, such as a 401(k) or 403(b), in addition to your IRAs, you must calculate and satisfy your RMDs for IRAs separately from your qualified plan accounts. If you have more than one qualified retirement plan account, you must calculate and satisfy your RMD requirements separately for each qualified plan account.

For example, if you have both a profit-sharing plan and a self-employed 401(k), you must separately calculate and withdraw an RMD from each plan. Also, RMDs for Inherited IRAs must be satisfied separately from your other IRAs (there are special rules for inherited IRAs).

When you have old employer plans and/or several IRAs, it may be easier to consolidate your accounts into an IRA in order to make taking RMDs easier to manage. We would be happy to help you with this process.