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Required Minimum Distributions

If you are retired or have turned 72 and have invested in a retirement plan, December 31st of each year should be clearly marked on your calendar. That’s the last day you are allowed to take any Required Minimum Distributions or RMDs for the taxable year to avoid a steep IRS penalty. In fact, penalties for mishandling these withdrawals are among the most costly in the entire tax code.

You must start withdrawing from your IRA when you reach a certain age

The IRS requires retirement account holders to withdraw a certain minimum amount from their retirement accounts each year once you reach a certain age (except for qualifying distributions from a Roth IRA). The exact amount changes from year to year based on several factors.

Retirement accounts like 401(k)s and Traditional IRAs delay taxation to incentivize you to save more while you are working. But at a certain point the IRS wants to begin collecting taxes, which they can do when you make a withdrawal (which the IRS calls a distribution) from your retirement accounts.

When must I begin taking required minimum distribution?

The SECURE Act went into effect on January 1, 2020 and increased the age at which you must take your first required minimum distribution from 70 ½ to 72 years. With these changes, if your 70th birthday is July 1, 2019 or later, you do not have to take withdrawals until you reach age 72.

Every year your RMD must be taken by December 31, except for the year in which you turn 72 when it may be taken as late as April 1 of the following year.

Please refer to the IRS information on Required Minimum Distributions and to the basic IRS Required Minimum Distribution rules for retirement account holders.

Calculate your RMD using the applicable IRS table

Generally, your RMD is calculated for each account by dividing the prior December 31 balance of that IRA or retirement plan account by a distribution period (a life expectancy factor) that the IRS publishes in Tables in Publication 590-B.

Choose the life expectancy table to use based on your situation

If you do not take your RMD in time, the IRS will impose a significant penalty equal to 50% of your RMD amount.

You must calculate the RMD separately for each IRA that you own. But you can withdraw the total amount from one or more of the IRA accounts that you own as long as you take the total amount required.

There are costly penalties for mishandling RMDs

If you do not take your RMD in time or if you fail to withdraw the full amount, the IRS will impose a significant penalty equal to 50% of your RMD amount not withdrawn.

If you don’t have enough cash in your retirement account to take the required RMD you have three options:

  1. You can take your required distribution from one or more IRA accounts that has sufficient cash to meet your distribution requirement.
  2. You can have all or a portion of an asset re-registered in your name.
  3. You can liquidate a portion or all of an asset.

This Uniform Lifetime Table below is for use by:

  • Unmarried owners
  • Married owners whose spouses are not more than 10 years younger and
  • Married owners whose spouses are not the sole beneficiaries of their IRAs

Uniform Lifetime Table

Age Distribution Period Age Distribution Period
70 27.4 93 9.6
71 26.5 94 9.1
72 25.6 95 8.6
73 24.7 96 8.1
74 23.8 97 7.6
75 22.9 98 7.1
76 22.0 99 6.7
77 21.2 100 6.3
78 20.3 101 5.9
79 19.5 102 5.5
80 18.7 103 5.2
81 17.9 104 4.9
82 17.1 105 4.5
83 16.3 106 4.2
84 15.5 107 3.9
85 14.8 108 3.7
86 14.1 109 3.4
87 13.4 110 3.1
88 12.7 111 2.9
89 12.0 112 2.6
90 11.4 113 2.4
91 10.8 114 2.1
92 10.2 115 and older 1.9

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