You have worked hard to build your nest egg by
contributing to retirement plans that offer tax advantages. At age 70½, the Internal Revenue Service requires most
people to begin withdrawals from their tax-deferred retirement plans. Failure to meet the
IRS requirements can subject individuals to a 50% federal tax penalty.
Q. What are Required Minimum Distributions?
Minimum Distributions (RMDs) are minimum amounts that must be removed annually from
tax-deferred retirement plans after you attain age 70½. Tax-deferred retirement plans include
Traditional IRAs, 403(b) Tax Sheltered Annuities (TSAs) and 401(a) qualified retirement
plans. 401(a) qualified retirement plans include, but are not limited to: profit sharing,
stock bonus, target benefit, money purchase, and 401(k) plans. Roth IRAs are exempt from the RMD rules.
Q. What is the deadline for receiving RMDs?
Normally, the RMD must be removed
from your tax-deferred retirement plan by December 31 each year. However, the deadline for
your first RMD is typically April 1 of the
year following the year you attain age 70½. If you wait until April 1 to remove your first RMD, you must remove the equivalent of two RMDs during the second calendar year. One for the first RMD by April 1 and a second RMD by December 31.
In addition, if you are
a participant in a 403(b) or 401(a) qualified retirement plan and are (1) less than a 5% owner of the business sponsoring the retirement plan and
(2) are still employed by the employer sponsoring the plan, you may delay your first RMD until the later of: (1) April 1 following
the year you attain age 70½ or (2) April 1 following the year you retire.
Q. What taxes or penalties apply to myRMD?
A. The assets within your retirement plan have
grown tax-deferred to help build your retirement nest egg. Therefore, amounts that
represent a withdrawal of tax deductible contributions and tax-deferred earnings are taxed
as ordinary income during the year they are removed from your retirement plan. However,
you will not be taxed on any portion of your RMD
that represents a withdrawal of nondeductible Traditional IRA contributions or after-tax employee
contributions to a 401(a) qualified retirement plan. If you have made non-deductible
Traditional IRA contributions use the IRS form 8606 to calculate the taxable portion of
Q. How do I
determine the amount of my RMD?
determine your 70½year,
you add six months to your 70th birthday. Use the chart below to calculate your 70½ Year:
|If your Birthday is
on or between:
and June 30
|July 1 and
Q. What is my life expectancy factor?
A. Your life expectancy factor is a number, based
on IRS actuarial tables, which represents how long the IRS expects you to live. Life
expectancy may be determined three (3) ways:
- Single Life Expectancy is determined using your
own life expectancy.
- Joint Life Expectancy
is based on the combined lives of you and your oldest primary
beneficiary which may be a spouse or non-spouse beneficiary.
- The Minimum Distribution Incidental Benefit Rule (MDIB) generally applies when your oldest primary beneficiary is a non-spouse
beneficiary with an age difference of greater than 10 years. The
MDIB rule requires plan participants with non-spouse beneficiaries more than 10 years
younger to use a joint life expectancy of no greater than the joint
life expectancy of a beneficiary 10 years younger than the plan
As I get older, how is my life expectancy
factor determined in subsequent years?
subsequent years after the initial age 70½ year, minimum
distributions arc calculated using the appropriate year-end value and your adjusted life
expectancy. By April 1 following your 70½ year (the required beginning date), you generally must make an
irrevocable written election as to how your life expectancy will be determined for years
following the age 70½ year. The two ways of determining life expectancy after
the age 70½ year are: (1) recalculate or (2)
The recalculate method may be used with single life expectancy or joint life
expectancy with a spouse beneficiary. With the recalculate method, the IRS unisex life
expectancy tables are referenced annually to determine the appropriate life expectancy
factor. A non-spouse beneficiary's life expectancy may not be recalculated.
The non-recalculate method is also referred to as the term certain"
or "declining years" method. With the non-recalculate method, the life
expectancy factor determined in the age 70½
year is reduced by one for each subsequent year after the age 70½ year.
Q. Will the amount of my
RMD remain the same every year?
A. No. Your RMD amounts may differ from year to year as your
year-end account value and life expectancy change.
Q. May I remove more than the required minimum amount?
A. Yes, the RMD amount is merely a minimum amount. In any
given year, you may withdraw more than the minimum
amount, but you cannot apply any additional amounts from earlier years to RMDs in
However, withdrawal amounts from 403(b) or 401(a) qualified retirement plans
that exceed the required minimum distribution amount are subject to mandatory 20% federal withholding.
I have multiple IRAs or TSAs may I combine
my RMD amounts?
The amount of your RMD must be
calculated individually for each of your IRAs or
TSAs; however, the actual distribution received may be removed from any one of your IRAs or TSAs. In fact, multiple RMDs may he aggregated and removed from a single IRA or TSA. However, IRA RMD amounts may not be
taken from TSAs, and TSA RMD amounts may
not be taken from IRAs.
This "combination rule" does not apply to 401(a) qualified retirement
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