Required Minimum Distribution (RMD)

Saving for retirement is very important, however once you reach the age of 70½, or have inherited a retirement plan, you are required to take a minimum distribution from your retirement or inherited accounts by the end of each year. Required Minimum Distributions (RMD’s) can be confusing; below are answers to some common questions regarding RMD’s. Additional information regarding RMDs can also be found on the IRS’ website.

What types of retirement plans require minimum distributions?

The RMD rules apply to all employer sponsored retirement plans, including profit-sharing 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, and SIMPLE IRAs.

Roth IRAs do not require withdrawals until after the death of the owner.

When must I receive my required minimum distribution from my IRA?

You must take your first required minimum distribution for the year in which you turn age 70½. However, the first payment can be delayed until April 1 of the year following the year in which you turn 70½. For all subsequent years, including the year in which you were paid the first RMD by April 1, you must take the RMD by December 31 of the year. If the RMD is due to an inherited IRA, the RMD must be taken by December 31 of the year following the year of death.

Can a distribution in excess of the RMD for one year be applied to the RMD for a future year?

No.

What happens if a person does not take a RMD by the required deadline?

If an account owner fails to withdraw a RMD, fails to withdraw the full amount of the RMD, or fails to withdraw the RMD by the applicable deadline, the amount not withdrawn is taxed at 50%. 

Can RMD amounts be rolled over into another tax-deferred account?

No. 

If you still have questions about RMD’s, reach out to your financial planner or tax representative for additional guidance. You can also go to the IRS website at www.irs.gov to learn more about the topic. If you are in need of a tax preparer, give CFO 4 Your Biz a call at 402-216-0356.

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