Required Minimum Distributions

I’ve received a few questions recently about “required minimum distributions” (RMDs), so I will address the basics of RMDs in this article.

If you’re over age 70 1/2, you may be required to take an RMD from your retirement accounts.  Non-spouse beneficiaries who inherit IRAs or 401(k) funds may also be subject to RMD rules BEFORE the beneficiary turns 70 1/2.

The RMD is calculated using actuarial tables found in IRS Publication 590.  Different tables are used for different situations.  Most people will use the “Uniform Lifetime Table” for age 70 1/2 RMDs, but that’s not always the case. 

The RMD must generally be taken by December 31st of each year.  There is an exception for the year of the first RMD, when the RMD must be taken by April 15th of the following year. 

For 401(k) and other employer-provided retirement plans, people over age 70 1/2 do NOT have to take an RMD if they are still working (unless the person is a greater-than-5% owner, in which case they DO have to take the RMD even if still working).  This does not apply to IRAs; you must take an RMD from your IRA even if you’re still working.

One important note:  Roth IRAs are NOT subject to RMD rules, but Roth 401(k) money IS subject to RMD rules. 

If you don’t take the RMD, you can be subjected to a 50% excise tax.

RMDs can be simple, but they can also be very complex, especially for non-spouse beneficiaries or for married people where there is more than a 10-year difference in age between the two spouses.  It is best to consult a tax or investment professional to make sure the RMD is calculated correctly.