Required Minimum Distribution

What is a Required Minimum Distribution (RMD)?

          Required Minimum Distributions (RMDs) are mandatory annual withdrawals that the federal government requires from traditional IRAs and employer-sponsored retirement plans starting at age 73 (or age 75 for those turning 73 after December 31, 2032).

          These distributions are calculated to ensure the full balance of your account is gradually distributed over your lifetime. The purpose of RMD rules is to prevent individuals from indefinitely deferring taxes by accumulating retirement funds and passing them on as an inheritance. Instead, RMDs are designed to generate taxable income during your lifetime, ensuring retirement savings are used as intended while taxes are collected on the withdrawn funds.

When Must Required Minimum Distributions (RMD) be Taken?

           Your first required distribution from an IRA is for the year you turn 73 (75 for those who reach age 73 after December 31, 2032). However, you have some flexibility regarding when  you can take this initial distribution.  You can withdraw it anytime during the year you turn 73 or delay it until as late as April 1 of the following year.

            This April 1 deadline is referred to as your "required beginning date." For all subsequent years, required distributions must be taken no later than December 31 of each year until your account balance is fully distributed or you pass away.

             If you choose to delay your first distribution until April 1 of the following year, you’ll need to take two distributions in that same year: your first year’s required distribution and your second year’s required distribution.

What if You Fail to Take Your Required Minimum Distribution? 

              You can always withdraw more than you are required to from your IRAs and retirement plans. However, if you fail to take at least the RMD for any year (or if you take it too late), you will be subject to a federal penalty. The penalty is a 25% excise tax on the amount by which the RMD exceeds the distributions made to you during the taxable year.

What is the Formula to Calculate Your Required Minimum Distribution?

            The formula is fairly straightforward, you divide the account balance of the qualified IRA as of December 31st of the previous year divided by the life expectancy factor.  This factor is based on the IRS life expectancy tables.