Required Minimum Distributions - US
Balagee Jayakumar, EA (US), MCom, MS in Accounting (US).,
Manager - Level 2 senior @ RSM US LLP | Expertise in US Taxation for more than 15 years | Enrolled Agent | Half CPA (2/4)
What is the Required Minimum Distribution (RMD)?
RMDs are not particularly all that bad! You have some choices, but as always – Uncle Sam just needs his cut.
The Internal Revenue Service (IRS) allows you to defer taxes by investing your money into your retirement account. The minimum distribution rules apply to original account holders and their beneficiaries in these types of plans:
1.???Traditional IRAs
2.???SEP IRAs
3.???SIMPLE IRAs
4.???401(k) plans
5.???403(b) plans
6.???457(b) plans
7.???Profit-sharing plans
8.???Other defined contribution plans
9.???Roth IRA beneficiaries
If you are still working after age 72, RMDs from a 401(k) may be delayed until retirement. Eventually, when you attain age 72 and retired, Uncle Sam dictates you withdraw money from the account annually, known as Required Minimum Distributions (RMD). As soon you reach age 72, the RMD triggers and you must start withdrawing by or before April 1 following the year.
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How much to withdraw
The distribution amount varies from year to year and is based on your life expectancy. It is calculated by dividing an account’s year-end basis by the estimated and expected remaining years of your lifetime, as prescribed by IRS.
How to calculate
Divide the year-end basis of the retirement account by the distribution period value that matches your age on Dec. 31st each year.
For example,
Saneesh, who is 80 years old, a widower and whose IRA was worth $200,000 at the end of last year, would use the Uniform Lifetime Table. It indicates a distribution period of 20.2 years for an 80-year-old. Therefore, Saneesh must take out at least $9,901 this year ($200,000 divided by 20.2).
Deadline for receiving required minimum distribution:
·??????Year you turn age 72 - by April 1 of the following year
·??????All subsequent years - by December 31 of that year
1.???IRA balance2 on December 31 of the previous year
2.???Distribution period from the table below for your age on your birthday this year
3.???Line 1 divided by line 2. This is your RMD for this year
4.???Repeat steps 1 through 3 for each of your (non-inherited) IRAs.
Once you determine a separate RMD from each of your (non-inherited) IRAs, you can total these minimum amounts and take them from any one or more of your (non-inherited) IRAs.