Questions and Answers about Required Minimum Distributions (RMD)

  by Shelley Seagler

The Internal Revenue Service (IRS) requires that all people who have some form of retirement savings (except for Roth retirement accounts) take an annual Required Minimum Distribution (RMD) starting in the year that you reach age 70 ½. The RMD is just that: a Required Minimum Distribution, not the maximum distribution. The IRS believes that at that age and beyond it is time to be taxed on a small amount of those retirement savings accounts each year. Many people have questions about these distributions as they approach this milestone. This should clarify any questions that you might have regarding this important topic.

Q: How is the RMD calculated?

A: Generally speaking the amount is calculated by using the year-end value of your retirement account, as of December 31st of the previous calendar year and dividing that amount by the IRS’s life expectancy table that corresponds with the account owner’s date of birth.

Q: What happens if I don’t really want to take the RMD?

A: The first RMD must be taken not later than the April 1st following the year in which you turn age 70 ½. While you can delay your first year’s RMD until April 1st, all future RMDs must be taken by December 31st.  If you choose to delay your first withdrawal, then you will be required to take 2 RMD’s in the same year. This choice could very well put you in a higher tax bracket.  It may be best to consult your tax professional before you decide to defer it. If you fail to take your RMD, the IRS can penalize 50% of the amount(s) that you were to take out annually. That’s a significant price to pay for failing to meet their requirements.

Free Download: RMD Calculation Worksheet

Q: Do I need to take my RMD from my employer sponsored plan?

A: Yes. 1) If you have separated service from a company that sponsors a retirement savings plan, you are required to take the RMD from each plan that you may have left with your former employer.  2) Additionally, if the account owner is also a 5% owner of the business sponsoring the retirement plan then the RMDs must begin once the account holder is age 70 ½, in spite of the fact that they are still employed with that company. 3) In the majority of cases RMD’s are not required from an active employer sponsored plan if you are still employed with that company and are not a 5% owner of that company.

Q: I have a 403(b). I’ve heard that if I made contributions to it prior to 1987 that I do not need to take that distribution.

A: It’s important to understand that Pre-1987 contributions to 403(b) plans, excluding any earning or gains are NOT subject to Required Minimum Distributions. Only the earnings or gains on the principal amount invested prior to 1987 as well as the contributions, earnings and gains made after 1987 are subjected to the RMD in any 4039b) plan.

In Conclusion: There are many other potential nuances to calculating your RMD. If you have specific question about your RMD, please don’t hesitate to contact us.  We also recommend that you consult with your tax professional for more information. An excellent resource for more information on RMD’s is the IRS website at this link:

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