What are Required Minimum Distributions for Retirement Plan Account Holders?
Richard Moravek CLU
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Required Minimum Distributions (RMDs) generally are minimum amounts that a retirement plan account owner must withdraw annually starting with the year that he or she reaches 72 (70 ? if you reach 70 ? before January 1, 2020), if later, the year in which he or she retires.
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However, if the retirement plan account is an IRA or the account owner is a 5% owner of the business sponsoring the retirement plan, the RMDs must begin as outlined above, regardless of whether he or she is retired.
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For the first year following the year you reach age 72, you will generally have two required distribution dates: an April 1 withdrawal for the year you turn 72 and an additional withdrawal by December 31.
For each year after your required beginning date, you must withdraw your RMD by Dec. 31st.
Retirement plan participants and IRA owners, including owners of SEP IRAs and SIMPLE IRAs, are responsible for taking the correct amount of RMDs on time every year from their accounts, and they face stiff penalties for failure to take RMDs.
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What types of retirement plans require minimum distributions?
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The RMD rules apply to all employer sponsored retirement plans, including profit-sharing plans, 401(k) plans, 403(b) plans, and 457(b) plans. The RMD rules also apply to traditional IRAs and IRA-based plans such as SEPs, SARSEPs, and SIMPLE IRAs.
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The RMD rules also apply to Roth 401(k) accounts. However, the RMD rules do not apply to Roth IRAs while the owner is alive.
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How is the amount of the required minimum distribution calculated?
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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 the IRS publishes in Tables.
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Can an account owner just take a RMD from one account instead of separately from each account?
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An IRA or 403(b) contract owner must calculate the RMD separately for each IRA/403(b) that they own but can withdraw the total amount from one or more of the IRAs/403(b)s.
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However, RMDs required from other types of retirement plans, such as 401(k) and 457(b) plans must be taken separately from each of those plan accounts.
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Who calculates the amount of the RMD?
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Although the IRA custodian or retirement plan administrator may calculate the RMD, the IRA or retirement plan account owner is ultimately responsible for calculating the amount of the RMD.
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Can an account owner withdraw more than the RMD?
Yes.
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What if a person does not take a RMD by the required deadline?
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If an account owner fails to withdraw an RMD, fails to withdraw the full amount of the RMD, or fails to withdraw the RMD by the applicable deadline, the amount not withdrawn is taxed at 50%.
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Can a distribution more than the RMD for one year be applied to the RMD for a future year?
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No.
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How are RMDs taxed?
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The account owner is taxed at the income tax rate on the amount of the withdrawn RMD. However, to the extent the RMD is a return of basis or a qualified distribution from an Roth IRA, it is tax free.
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Can RMD amounts be rolled over into another tax-deferred account?
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No.
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