When are RMDs required to begin?
Typically, you will need to begin making annual distributions starting the year that you will turn 70 ½ years old, or the year in which you retire. What this means is that if you are 70 ½ and still work for the company with which you have your 401(k), you will not be mandated to take an RMD from that account.
Important exception: If you own at least 5% of the business that sponsors the retirement plan, you will need to begin making the RMD once you are 70 ½, whether or not you are working.
Do RMD rules apply to all kinds of retirement accounts?
RMD rules apply to:
1) Traditional individual retirement accounts (IRAs)
2) IRA-based plans including SEPs, SARSEPs, and Simple IRAs
3) All employer-sponsored retirement plans including 403(b), 457(b), 401(k), and profit-sharing plans
Important exception: RMD rules do not apply to Roth IRAs (while the plan owner is alive), but DO apply to Roth 401(k) plans.
When do RMDs need to be made?
If you have any IRA account, RMDs must be made by April 1 of the year following the year you turn 70 ½, even if you are still employed. After that, RMDs must be made by December 31 of each year.
How do I calculate my RMDs?
The IRS offers several worksheets and resources to help you understand the amount of your RMD.
Please note: IRA owners have to calculate separate RMDs for each account, although the entire amount can be taken from one or more of the IRAs. However, RMDs from plans such as 401(k)’s must be taken individually from each account.
What else do I need to know about RMDs?
There are some other important elements to RMD requirements:
1) If the plan or IRA owner dies, there are different distribution rules for beneficiaries.
2) If you are still employed and need to make RMDs, your employer still has to contribute to your plan, and you must be given the opportunity to make salary deferrals, plan permitting.
3) If your distributions fall below the RMD requirements, then you will be subject to a tax equal to 50% of the undistributed RMD.
Have more questions?
The Robin S. Weingast & Associates team is here to help. We have over 30 years of experience helping our clients with their benefits, retirement, and investment needs. Contact us for a free consultation today.
Content for this post came from this article.