Table of Contents
Required Minimum Distributions (RMDs) are mandatory withdrawals that retirees must take from certain retirement accounts once they reach a specific age. Understanding these rules helps retirees manage their income and avoid penalties. This article outlines essential RMD rules every retiree should know for smarter money management.
When Do RMDs Begin?
Retirees are generally required to start taking RMDs by April 1 of the year following the year they turn 73. This age was increased from 70½ in recent years. After the initial RMD, subsequent distributions must be taken by December 31 each year.
Which Accounts Are Subject to RMDs?
RMD rules apply to traditional IRAs, SEP IRAs, SIMPLE IRAs, and employer-sponsored retirement plans such as 401(k)s and 403(b)s. Roth IRAs are not subject to RMDs during the account holder’s lifetime.
Calculating RMDs
The amount of the RMD is calculated by dividing the account balance as of December 31 of the previous year by the IRS life expectancy factor. The IRS provides tables to determine the appropriate divisor based on age.
Important RMD Rules
- One RMD per account: Each retirement account requires a separate RMD calculation.
- Penalties for non-compliance: Failing to take the full RMD can result in a 50% excise tax on the amount not withdrawn.
- Multiple accounts: RMDs can be aggregated across accounts of the same type, but it’s often simpler to calculate separately.
- Timing: RMDs must be taken by December 31 each year, except for the first RMD, which can be delayed until April 1 of the following year.