Earlier this month, the IRS reminded retirees about the required minimum distribution rules for IRAs and other retirement plans.
Because retirements plans are exactly that – to be used for retirement purposes – Congress requires that, starting at a certain time, funds must start coming out of those plans. Section 401(9) tells us both when that time begins and how much, at a minimum, the distribution should be.
Under section 401(9), the required beginning date (the RBD) – when the distributions must begin – is, generally, April 1 of the calendar year following attaining age 70 ½ (though there is a still-working exception for employer-based plans). So, once you pass your RBD, you need annual RMDs. The IRS explains as follows:
The special April 1 deadline only applies to the RMD for the first year. For all subsequent years, the RMD must be made by Dec. 31. So, for example, a taxpayer who turned 70½ in 2017 (born after June 30, 1946, and before July 1, 1947) and received the first RMD (for 2017) on April 1, 2018, must still receive a second RMD (for 2018) by Dec. 31, 2018.
The required minimum distribution (the RMD) is calculated based on the taxpayer’s life expectancy and the previous year’s account balance. The RMD amount is often reported on Form 5498 in Box 12b. The IRS provides worksheets for calculating this amount (here).
As the IRS continues to explain, for IRAs, the RMD needs to be calculated for each IRA, but the amount can be withdrawn form one or more of those IRAs. RMDs for workplace-based plans, on the other hand, need to be taken separately from each plan.
RMD requirements apply to an array of individual and workplace-based retirement plans, such as IRAs, 401(k), and 403(b) plans. Importantly, though, as the IRS explains, “Roth IRAs don’t require distributions while the original owner is alive.”
You can read the full news release here.
You can read more from the IRS about RMDs here.
Qualified plans and related rules can be very technical, so be sure to discuss these rules and related questions with your tax advisor.