Generally, for the year in which an individual turns age 70 ½ an individual must start taking distributions from their retirement accounts. Whether these amounts are needed for funding your retirement, the IRS requires that you begin taking the distributions.
You can delay the first payment of an RMD into the next tax year. However, you would still be required to take the next years distribution as well. So you would effectively have two distributions in one year and the tax liability associated with the distribution.
RMDs are taxed as ordinary income for the tax year in which they are taken. If you made non-deductible contributions to your IRA, you will need to calculate your RMD based on the total balance, but your taxable income may be reduced proportionately for the after-tax contributions.
Here are a few frequently asked questions from the IRS:
Who calculates the amount of the RMD?
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.
When must I receive my required minimum distribution from my IRA?
You must take your first required minimum distribution for the year in which you turn age 70½. However, the first payment can be delayed until April 1 of the year following the year in which you turn 70½. For all subsequent years, including the year in which you were paid the first RMD by April 1, you must take the RMD by December 31 of the year.
What types of retirement plans require minimum distributions?
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.
Can an account owner just take a RMD from one account instead of separately from each account?
An IRA owner must calculate the RMD separately for each IRA that he or she owns, but can withdraw the total amount from one or more of the IRAs. However, RMDs required from other types of retirement plans, such as 401(k) and 457(b) plans have to be taken separately from each of those plan accounts.
What happens if a person does not take a RMD by the required deadline?
If an account owner fails to withdraw a 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fails to withdraw the full amount of the RMD, or fails to withdraw the RMD by the applicable deadline, the amount not withdrawn is taxed at 50%.
This article is for informational purposes only. This website does not provide tax or investment advice, nor is it an offer or solicitation of any kind to buy or sell any investment products. Please consult your tax or investment advisor for specific advice.