The year is almost over. If you have not taken your RMD yet, do it quickly.
The deadline for taking your Required Minimum Distribution (RMD) out of your retirement account(s) is fast approaching. If you have not taken it this calendar year, take it immediately!
Don’t let it slide. The penalty is onerous if you don’t take a withdrawal.
But
Like everything in life, there are exceptions and other important things to know. And like everything else in life, it all depends.
On What?
First let’s look at age.
The rules are slightly different depending on when a person reaches 70-1/2. A person who reached 70-1/2 in or before 2019, the first RMD withdrawal must have taken place by April 1, 2020. If you reach age 70-1/2 in 2020 or later you must take your first RMD by April 1 of the year after you reach 72.
That is for the first RMD withdrawal. Afer the first year, one must take the RMD withdrawal each calendar year. That means somewhere between January 1 and December 31.
The Calendar is Calling
So when we mention to take the withdrawal before the end of the year, that does not apply to the first year, since you can let it go until April 1 of next year. However, that also means you must take next year’s withdrawal also next year, which means that next year you will have two withdrawals. Maybe that’s OK with you, but it also means two tax hits, which might change your tax bracket. So be careful.
That is why many people do not let the first year RMS slide to April of the following year. That first year RMD can be taken the year one turns 70-1/2 and be done with it.
Which Accounts
The RMD rules apply to all employer sponsored retirement plans, including profit-sharing plans (like Keogh plans), 401(k) plans, 403(b) plans, and 457(b) plans. The RMD rules also apply to traditional IRAs and IRA-based plans such as SEPs, SARSEPs, SIMPLE IRAs, and Roth 401(k) accounts. However, the RMD rules do not apply to Roth IRAs while the owner is alive.
How Much
Again, this varies. The amount of RMD changes each year. The amount is based on a percentage of the total amount in all retirement accounts. This percentage changes each year. (“… changes every year” means that it goes up every year.) The IRS, in their infinite wisdom, has a long and complex discussion here.
This blog has a two posts on calculating the RMD amount. You can see these posts here and here. Be aware that the IRS rules changed slightly from when these two posts were originally written.
Since
Since RMD rules, like all rules, are complicated, have special cases, and can be confusing, you can see the IRS’ RMD FAQ here.
The Bottom Line
So if you are 70-1/2 and have any retirement accounts (other than a Roth IRA), you need to be immediately aware of RMD rules. Talk to the custodian where your accounts are located, such as a bank, a brokerage, or insurance company, etc. They can help you.
Your RMD experience? Let me know here.
The map displayed is entitled “The Spanish Netherland, Commonly called Flanders.” Flanders is the Dutch-speaking area of Belgium. The map was created in 1719, as part of “A New General Atlas, containing a Geographical and Historical Account of all the Empires, Kingdoms and other Dominions of the World … The maps … are all engraven or revised by Mr. Senex, etc.” and was owned by King George III of Great Britain. Courtesy the British Library.
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