IRS Required Minimum Distributions
Retirement plans, like IRAs and 401(k) plans, allow you to save for your future. However, if you don’t follow the IRS required minimum distribution rules, you might receive tax penalties for not starting to withdraw your money by a certain age.
If you’re an IRA beneficiary, the rules are different. Review our inherited IRA article for details.
Required Minimum Distribution (RMD) requirements for IRAs and 401(k)s
What are the IRS Required Minimum Distribution rules you need to know about? In general, once you reach a certain age, you need to take money out of your retirement plan. That sounds simple, but the details are important.
To take a closer look, let’s go over the specifics to clarify the following: age, required, and minimum.
AGE – Review the new required minimum distribution rules
The age milestone — also called the Required Beginning Date (RBD) — for Required Minimum Distribution (RMD) rules changed with the 2022 SECURE Act 2.0, so it’s helpful to look at birthdates to know which timeline to follow for your 401(k) or Traditional IRA withdrawals.
If you were born:
- Between July 1, 1949, and December 31, 1950: You should have taken your first RMD in the year you turn(ed) 72. You could have delayed the first RMD that year, but then you should have taken it by April 1 of the year after you reach age 72.
- Between January 1, 1951, and December 31, 1958: You can take your first RMD in the year you turn(ed) 73. You can delay the first RMD that year, but then you should take it by April 1 of the year after you reach age 73.
- January 1, 1959, or after: You can take your first RMD in the year you turn 75. You can delay the first RMD that year, but then you need to take it by April 1 of the year after you reach age 75.
Keep in mind, if you don’t take an RMD in that first year, you’ll have to take two distributions the next year. After that, you’ll need to take a Required Minimum Distribution each year to stay in line with the IRS rules.
First-year RMD exception for certain plans: If you are still working when you reach your Required Beginning Date, you may delay your first RMD but only for an employer-sponsored plan for your current job. You may not delay RMDs for IRAs or for other employers’ plans.
Understanding RMD requirements
Unfortunately, IRS required minimum distributions are not optional – and come at a price if you don’t take them. In fact, if you don’t take or forget to take the minimum amount each year, you’ll likely have a 25% penalty on your hands for the amount not distributed (the penalty was 50% for tax year 2022 and before).
Let’s say your RMD amount for last year was $5,000, but you only took out $4,000. That means you had another $1,000 left to withdraw — that amount is subject to the 25% penalty. In other words, you’d lose $250 (25% of the $1,000) to the Required Minimum Distribution penalty.
You may request a waiver of the penalty if not taking an RMD was due to reasonable error on your part and you have taken steps to remedy the situation.
Don’t worry though – as long as you stay in line with the rules, you’re in the clear! Take out that hard-earned retirement money you’ve been saving for decades – you deserve to have a little fun in your yesteryears.
What exactly are Required Minimum distribution minimums
Minimum withdrawal amounts are based on life expectancy. So, first figure your required minimum distribution using IRS life expectancy tables. You can find them on the IRS website.
First, determine your required minimum distribution for each of your IRA and employer retirement accounts separately. For IRAs, you can take the total traditional IRA RMD amount from just one IRA or from several of them, as long as your total distributions are at least as much as the total RMDs for all IRA accounts. However, distributions from employee retirement plans should be taken separately from each account. You can also take RMDs all on one day in the year or spread them out over several distributions.
Some banks and investment plans will offer automatic options, so you don’t have to remember to request the distribution.
What if you don’t need the money to live off at the moment? Is a rollover a possibility for avoiding a penalty? Unfortunately, no. IRS required minimum distributions aren’t eligible for rollover. You must pay tax on them.
Need help with Required Minimum Distribution rules?
Understanding RMD rules can get tricky, but it’s important to know you’re following them so you can avoid costly penalties.
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