Required Minimum Distributions (RMDs)

What is an RMD?

RMD stands for required minimum distribution. The IRS requires certain people to withdraw a prescribed amount from qualified retirement plans and IRAs or face a stiff penalty (actually egregious or usurious is a better description since the penalty equals 50% of the required amount not withdrawn).

Who must take RMDs?

Two groups of people are subject to RMDs:

  1. Anyone age 72 or older.

You must withdraw the prescribed amount for the first time by April 1st of the year following the year in which you turn age 72 (although if you wait until the year following to take your first distribution, you are subject to two withdrawals that year).

Subsequent withdrawals must be made by 12/31 of each calendar year without regard to tax return filing or extension dates.

Exception: RMDs are not required from qualified plans for those older than age 72 if still working and contributing to the plan and if the plan allows postponement.

  1. Anyone (regardless of age) who owns a beneficiary or "inherited" IRA.

Non-spouse inheritors are allowed to continue tax deferral on qualified plans and IRAs by moving the inherited funds into a beneficiary IRA in their own name but they must begin RMDs by the end of the year following the year of death of the original account holder.

Subsequent withdrawals must be made by 12/31 of each calendar year without regard to tax return filing or extension dates.

If the decedent of your beneficiary IRA died after 12/31/2019, you are subject to the RMD rules AND the entire balance of your inherited IRA must be liquidated/distributed within 10 years following the year of the decedent's death.

What accounts are affected?

Traditional IRAs, qualified retirement plan accounts, and inherited Roth IRAs.

What about Roth accounts?

Roth accounts in the participant's name are not affected although inherited Roth IRAs are subject to RMDs (although the RMDs are usually not subject to taxation).

Can I aggregate my accounts?

You may aggregate IRAs and qualified plans separately for RMD calculation and withdrawal purposes but you must segregate each type (qualified plans/traditional IRAs/beneficiary Roth IRAs), make the calculation(s), and then make the RMD from each account type (if applicable).

How much must I withdraw?

The amount is based on an IRS life expectancy table and the prior year's ending account balance(s). The percentage of the account that must be withdrawn increases each year as the account owner gets older.

For IRAs, brokerage firms are required to calculate the amount for you, however, they will only do so based on the account(s) that are held at that particular firm.

If you own multiple accounts that require RMDs at different firms, you must either make separate distribution amounts based on the amount that each firm reports, or you must aggregate the amount and withdraw it from one of the accounts (as mentioned above, this must be done separately for each account type, Traditional IRA, Qualified plan, and inherited Roth IRA).

What is the penalty if I don't withdraw the correct amount?

50% of the deficient withdrawal amount.

Should I wait until the very end of the year?

No. Brokerage firms typically have processing deadlines prior to 12/31. Additionally, the exhorbitant "excise tax" on deficient withdrawals makes this important enough to handle well in advance.

Additionally, in the event of your premature death, if you had already taken the distribution prior to your passing, your beneficiaries will have an easier administrative task ahead of them.

How do I take my RMD?

For qualified plans, check with your plan administrator for their requirements. For IRAs, check with your brokerage firm for their requirements (many firms including Schwab will let you process the distribution online). Distributions can be paid out to you directly or reinvested in a taxable account.

Where do I get more information?

IRS website: Required Minimum Distributions
IRS website: RMD worksheet
IRS website: Which table do you use to calculate your RMD?

Consult your tax advisor

IMPORTANT: This is a VERY complicated section of the Internal Revenue Code and as previously mentioned, the penalty for mistakes or non-compliance is high. Always consult your tax advisor on all filing, calculation, and other tax requirements. If you don't have a tax adviser, get one.. there is no such thing as an easy tax return.

Two page downloadable summaries:
IRA required minimum distributions (RMDs)
Beneficiary IRA required minimum distributions (RMDs)