The ABCs of RMDs (Required Minimum Distributions)

If you own a Traditional IRA, SEP IRA, SIMPLE IRA, qualified retirement plan account, 403(b) account, and/or 457(b) account, and you are age 70.5 or older by the end of the year, you must withdraw a minimum amount from your balance by December 31. This mandatory withdrawal amount is referred to as a required minimum distribution (RMD), and must occur on an annual basis.

The Required Beginning Date

April 1, following the year in which you attain age 70.5, is referred to as the required beginning date (RBD). If your balance is in a qualified plan, 403(b), or 457(b), your employer may allow you to defer the start date of your RMD until after you retire, even if that occurs after age 70.5. If you are a participant with 5% or greater ownership in the employer, special rules apply, and you should check with your employer or plan administrator regarding how those rules will affect you and your plan.

Calculating Your RMD

To calculate the current year’s RMD amount for your retirement account, you will need to know the value of your retirement account for the previous year-end and your distribution period, which you can obtain from the IRS-issued life expectancy tables. Your previous year-end value is divided by your distribution period to arrive at your RMD amount for the year. For IRAs, your custodian is required to calculate and notify you of the amount. For qualified plans, the plan administrator will complete the calculation and provide you with distribution information.

Determining your Distribution Period

The IRS provides three life expectancy tables: (1) Single Life Expectancy, (2) Joint and Last Survivor Expectancy, and (3) Uniform Lifetime. Table 1 is used only by beneficiaries, and Table 2 is used by a retirement account owner who has designated a spouse who is more than 10 years his or her junior as the sole primary beneficiary of the account. In all other cases, including those in which there is either no designated beneficiary or a non-person beneficiary, such as a charity, Table 3 is used to determine the distribution period.
If the RMD amount is not distributed by the end of the year, the IRS will assess a 50% excise tax on the amount not withdrawn. If you find yourself owing the excise tax due to an error, you may request a waiver from the IRS. The IRS requires you to submit a letter of explanation with your income tax return, asking for a waiver.

Multiple Retirement Accounts

IRAs
The IRS permits individuals with multiple IRA accounts to total the RMD for all their IRAs and distribute the total from any one account. These amounts should be calculated separately for each IRA, as different rules could apply to each. For example, if you have two IRAs, one with your spouse who is more than 10 years your junior as the sole primary beneficiary, and the other with your daughter as the primary beneficiary, different tables would be used to calculate the RMD for each IRA.

Qualified Retirement Plans
If you own assets under multiple qualified retirement plans, RMD amounts must be calculated and distributed from each plan. These amounts cannot be combined.

403(b)s
RMDs for multiple 403(b) accounts must be calculated separately, but may be combined and withdrawn from one 403(b) account.

Roth IRAs
For Roth IRAs, the RMD rules do not apply to the owner. A different set of RMD rules apply to Roth and Traditional IRA beneficiaries.

It is recommended that you do not wait until the last minute to request your RMD, in order to avoid the penalties of missing the withdrawal deadline.

 

Jill Patton

Managing Benefits Administrator, Kassouf Retirement Plan Services, LLC

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