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Required Minimum Distributions (RMD)

If you are over age 70 ½ or you are a beneficiary of an IRA or other retirement plan, chances are you are subject to Required Minimum Distributions (RMD).

RMDs can be simple or complex depending upon your situation and how many accounts and account types you have. The basic steps to calculating an RMD are:

  1. Find the account value as of 12/31 of the prior year.
  2. Find the applicable life expectancy table to look up you life expectancy factor:
  3. Divide your 12/31 prior year balance by your life expectancy factor from the applicable table.
  4. Make sure to take your RMD before 12/31 of the given year to avoid the penalty.
NOTE: Your first RMD after reaching age 70 ½ can be delayed until April 1st(not 15th) of the year following the year you turn 70 ½. Take caution here however because if you delay your first RMD to the following year, you will be required to take two distributions in that second year; one for the prior year and one for the current year by 12/31 of that year.
You must calculate the RMD from each account separately however some accounts you can aggregate the distributions from one account if you so desire. For example, suppose you have three traditional IRA accounts; you must calculate the RMD separately for each account but you need only take one distribution from any of those accounts as long as you take the total amount required. If you have more than one account type the distribution rules begin to get complicated. The following is a general guide:
  • IRAs- Total RMD from all IRAs of the same type can be aggregated.
  • Roth IRA- No RMDs are required from Roth IRAs during the owner's lifetime.
  • 401(k)- Each distribution must be taken separately from each 401k account; no aggregation allowed.
  • Roth 401(k)- RMDs are required unless rolled over to a Roth IRA. Cannot be aggregated
  • 403(b)- Total RMD from all 403(b) accounts of the same type can aggregated
  • Roth 403(b)- RMDs are required unless rolled over to Roth IRA. Can be aggregated with other Roth 403(b)s.
  • Inherited IRA- RMDs for inherited IRAs of the same decedent can be aggregated. RMDs from different decedents cannot be aggregated.
  • Inherited Roth IRA- RMD is required for beneficiaries. Distribution rules are same for inherited IRAs.
  • Inherited 401(k)- Each distribution must be taken separately from each inherited 401k account; no aggregation allowed even for same decedent.
  • Inherited 403(b)- RMDs for inherited 403(b)s of the same decedent can be aggregated. RMDs from 403(b)s from different decedents cannot be aggregated.
There are many exceptions to these general RMD guidelines:
  • For example, the still working exception may apply to employer based plans if you are still working and over 70 ½ and less than 5% owner. This exception does not apply to IRA based plans.
  • For inherited IRAs and plans, the beneficiary need only look up their applicable life expectancy from the Single life Table in the year after the year of death for the first distribution. Each year thereafter the beneficiary will take the factor from the previous year and simply subtract one for each subsequent distribution. The beneficiary cannot go back to the Single Life Table to recalculate. If the surviving spouse is the beneficiary, there are several exceptions to these rules that apply and should be thoroughly considered before any action is taken.
  • Think twice before investing your IRA in an illiquid asset such as real estate as your RMDs can get even more complicated and difficult to take. If the IRA does not have cash to make the distribution, you cannot distribute a door or a wall as your RMD.
  • If you are receiving a distribution from an annuity that is based on your life expectancy or a period that is 10 years or greater, the distribution from that annuity will satisfy the RMD from that account only. Any distribution that is above what the RMD might have been if not an annuity cannot be aggregated with other retirement accounts.
  • If you plan to do a Roth conversion, you must take your RMD first!
As the above exceptions show, Required Minimum Distributions can be complicated. Be confident your retirement accounts are in good hands and choose to work with an Ed Slott trained Master Elite IRA Advisor. Schedule an Introductory Call to learn more about working with an Ed Slott trained Master Elite IRA Advisor.