Structure a Required Minimum Distribution

IRS regulations require that owners of retirement accounts including IRAs and qualified employer sponsored retirement plans (QRPs) such as 401(k)s, 403 (b)s and governmental 457(b)s must begin taking distributions annually from these accounts. These distributions are referred to as required minimum distributions or RMDs.

Once you reach your required beginning date (RBD), you will begin taking RMDs from any Traditional, SEP, and SIMPLE IRAs that you have, as well as from any QRPs left at former employers. The RBD is generally April 1 of the year following the year you turn 70½.

RMD rules can be complex and penalties for not complying with the rules can be significant. You may want to consult a financial advisor or your tax advisor for help. Consider these guidelines.

• Your RMD is calculated by dividing your account balance at the end of the previous year by the appropriate life expectancy divisor, based on your age as of 12/31, from IRS Life Expectancy Tables. Most IRA owners and plan participants will use the IRS Uniform Table to determine their divisor for the year.
• When your spouse is the sole primary beneficiary and is more than 10 whole years younger (meaning 11 years or more, not 10 1/2 for example) than you the IRS Joint Life Table can be used to determine the divisor.
• You have the option to delay your first RMD until April 1 of the year following the year you obtain age 70 1/2 but can take it sooner. Subsequent RMDs must be taken by December 31 of each year. You will owe ordinary income tax on the taxable portion of the distribution.
• If you do not satisfy all of your RMD, you may be subject to a 50% IRS tax penalty on the difference between the RMD and the amount that you actually took.
• If you have more than one IRA, you must calculate the RMD for each IRA separately each year. However, you may aggregate your RMD amounts for all of your IRAs and withdraw the total from one IRA or a portion from each of your IRAs.
• RMDs for Inherited IRAs must be satisfied separately from your other IRAs.
• Distributions from Roth IRAs do not satisfy RMD requirements.
• You cannot aggregate RMDs from all of your QRPs. You have to take RMDs from each QRP you have. You cannot satisfy your IRA RMD from your QRP or vice versa.