Required Minimum Distributions (RMDs) are minimum amounts that a retirement plan account owner must withdraw annually beginning with the year that he or she reaches 70½ years of age, or if later, the year in which he or she retires. However, if the retirement plan account is an IRA or the account owner is a 5% owner of the business sponsoring the retirement plan, the RMDs must begin when the account holder is age 70½, regardless of whether he or she is retired. The year you turn 70½, your first RMD must be taken by April 15th of the following year. In subsequent years, the RMD must be taken by December 31st of the current year. Thus, in the year after you turn 70½, you could have two RMDs—one for the previous year in which you turned 70½ and one for the current year.
Retirement plan participants and IRA owners are responsible for taking the correct amount of RMDs on time each year from their accounts. Otherwise, they face stiff penalties for failure to take RMDs. The custodian of your IRA account will be very familiar with these rules and can help you determine the minimum amount to withdraw. You may also consult Publication 590 issued by the IRS. Your RMD is based on total fair market value of all of your traditional IRAs in the previous year. Technically speaking, you could satisfy the RMD requirement by taking one withdrawal from one IRA. However, practically speaking, each custodian is likely to make you take separate RMDs from each individual account, which can be cumbersome depending on how many accounts you have in various places.
When a retirement plan account owner or IRA owner dies before RMDs have begun, different RMD rules apply to the beneficiary of the account or IRA. Generally, the entire amount of the owner’s benefit must be distributed to the beneficiary (an individual) either:
- Within five years of the owner’s death, or
- Over the life of the beneficiary beginning no later than one year following the owner’s death.
For additional information, please contact Henssler Financial at 770-429-9166 or [email protected].