RMD Basics for IRA Owners

If you own or are the beneficiary of an IRA, 401(k) or other retirement plan, make sure you don’t make an RMD (required minimum distribution) error. Failure to take at least the RMD amount each year results in a 50% penalty imposed by the IRS! Keep in mind that beneficiaries who inherit IRAs have different rules so you will need to contact your retirement distribution expert for more information about rules specific to IRA beneficiaries.

• IRA owners must take their very first RMD no later than April 1st of the year following the year they turn 70½. So if you turn 70½ in 2016, your required beginning date is April 1, 2017. However, if you choose to delay your very first RMD until 2017, you will need to take two RMDs in 2017 – your first RMD and your regular RMD for 2017.
• You reach age 70½ on the date that is 6 calendar months after the date of your 70th birthday.
• Except for your very first RMD discussed above, all subsequent RMDs must be taken no later than December 31st each year.
• RMDs are generally calculated by dividing the adjusted market value of your IRAs as of December 31st of the preceding year by the distribution period that corresponds with your age in the Uniform Lifetime Table (IRS Publication 590-B).
• You must calculate the RMD amount for each of your IRAs separately. However, if you have more than one IRA (must be the same type), you don’t have to take a separate RMD for each…you can aggregate and withdraw the entire amount from just one IRA of the same type or withdraw a portion from each IRA to satisfy your RMD.
• Failure to take a timely RMD results in a 50% penalty on the undistributed amount. This rule applies to both IRA owners and IRA beneficiaries.
• IRA owners can always withdraw more than the minimum distribution amount… just be prepared to pay the income taxes.