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Required Minimum Distributions (RMDs)

Required Minimum Distributions (RMDs)

Taxpayers cannot keep retirement funds in their qualified retirement accounts indefinitely.  Taxpayers must generally start taking withdrawals from their Traditional IRA, SIMPLE IRA, SEP IRA, or retirement plan account when you reach age 70½.  Roth IRAs do not require withdrawals until after the death of the owner.

The Required Minimum Distribution is the minimum amount one must withdraw from their account each year.  It's important to remember the following:

  • A taxpayer can withdraw more than the minimum required amount each year after turning 70½.
  • Taxpayer withdrawals will be included in their taxable income except for any part that was taxed before (your basis) or that can be received tax-free (such as qualified distributions from designated Roth accounts).

The Required Minimum Distribution for any year is the account balance as of the end of the immediately preceding calendar year divided by a distribution period from the IRS’s “Uniform Lifetime Table.”  A separate table is used if the sole beneficiary is the owner’s spouse who is ten or more years younger than the owner.  If a taxpayer inherits an IRA from the original owner, different rules, different options, and different distribution requirements apply.  The rules and options for an Inherited IRA are complex and fact dependent (available options and appropriate courses of action depend upon the age of the decedent and heir and upon various life circumstances), so legal counsel is strongly advised when inheriting an IRA.

If a taxpayer does not take the required distributions, or if the distributions are not large enough, you may have to pay a 50% excise tax on the amount not distributed as required.

Required Minimum Distribution rules apply to:

  • Traditional IRAs
  • SEP IRAs
  • SIMPLE IRAs
  • 401(k) plans
  • 403(b) plans
  • 457(b) plans
  • Profit Sharing plans
  • Other Defined Contribution Plans

The rules for calculating Required Minimum Distributions are complex and should performed by an experienced professional.  Furthermore, never make a decision concerning an Inherited IRA without first seeking legal council.  If you would like to discuss your particular retirement account and distribution amount, Davis Law can be reached at 404.901.2500 and 770.922.8500, or send us a message from our website - Contact Davis Law.

Internal Revenue Service Links:

Form 5329 - Additional Taxes on Qualified Plans

Form 5329 Instructions

Publication 590-B - Distribution from Individual Retirement Arrangements (IRAs), for details on calculating required distributions for beneficiaries.

Required Minimum Distributions for IRA Beneficiaries Internal Revenue Service Chart.

Excise Tax Form 5329 - Additional Taxes on Qualified Plans (Including IRAs) and Other Tax-Favored Accounts.

Joint Life and Last Survivor Expectancy Table – If your spouse is the sole beneficiary and is more than 10 years younger than you.

Uniform Lifetime Table - For all other IRA owners calculating their own withdrawals.

 

 

 

 

 

 

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