Income

Have You Calculated Your RMDs?

When’s the last time someone forced you to take some money? Doesn’t usually happen, right? However, if you’re nearing age 70½, it’s important for you to be aware of the IRS regulations for required minimum distributions (RMDs).

Required minimum distributions

RMDs are the amounts you must withdraw each year from a traditional IRA, employer-sponsored retirement plan, or tax-sheltered annuity. You must begin to take the annual distributions by April 1 of the year following the year in which you reach age 70½. Usually, if you work for your employer past age 70½ and are still participating in the employer's retirement plan, you may postpone your first distribution from that plan until April 1 of the year following the year of your retirement.

Regardless of your required beginning date, you must take subsequent distributions by December 31 of each calendar year—until your death or until your account balance is reduced to zero.

RMD rules apply to all employer-sponsored retirement plans (profit-sharing plans, 401(k) plans, 403(b) plans, and 457(b) plans); traditional IRAs and IRA-based plans (SEPs, SARSEPs, and SIMPLE IRAs); and Roth 401(k) accounts. However, RMD rules do not apply to Roth IRAs while the owner is alive.

How to calculate your RMD Transamerica I Calculate your Required Minimum Distribution

Generally, a RMD is calculated for each account by dividing the prior December 31st balance of that IRA or retirement plan account by a life expectancy factor published by the IRS.

You must calculate the RMD separately for each IRA or 403(b) contract you own, but you can withdraw the total amount from one or more of the IRAs or 403(b) contracts. RMDs required from other types of retirement plans (401(k) and 457(b) plans) have to be taken separately from each of those plan accounts.

Penalties

You are responsible for taking the correct amount of RMDs on time every year from your accounts, or face penalties. If you don’t withdraw a RMD, don’t withdraw the full amount of the RMD, or don’t withdraw the RMD by the applicable deadline, the amount not withdrawn is taxed at 50%. The penalty may be waived by establishing that the shortfall in distributions was due to reasonable error and that reasonable steps are being taken to remedy the shortfall.

The specific rules on required minimum distribution calculations and penalties are complicated and you should consult a tax professional regarding your situation.