What is a Required Minimum Distribution (RMD)
Written By: Jeremy Smith | Amerishield
Qualified retirement plans offer tax benefits if you follow a few IRS rules.
Retirement Plans are intended for Retirement
Penalties for early withdrawal help discourage early withdraws and guides investors to withdraw their qualified funds during their retirement years.
Required Minimum Distributions
The government also wants to ensure that they will one day be able to tax these funds which should create a much larger collectable tax.
- If you have a 401(k), a Keogh, a SEP or a traditional IRA, you must begin taking regular distributions from your plan by April 1st of the year following the year you turn 70½.
- Although the tax code allows you to wait until April 1 of the year following the year you turn 70½, for tax purposes it is generally a good idea to take your first mandatory withdrawal in the same year you turn 70½.
- **If you wait, you will have to make two withdrawals in the first year, doubling the amount of taxable income you must declare and potentially increasing your marginal tax bracket.
- The amount you are required to withdraw (RMD or Required minimum Distribution) each year, and which will be subject to taxation, is based on tables which estimate your remaining lifetime.
- An IRA owner must calculate the RMD separately for each IRA that he or she owns, but can withdraw the total amount from one or more of the IRAs.
- Similarly, a 403(b) contract owner must calculate the RMD separately for each 403(b) contract that he or she owns, but can take the total amount from one or more of the 403(b) contracts.
- However, RMDs required from other types of retirement plans, such as 401(k) and 457(b) plans have to be taken separately from each of those plan accounts.
- Distribution can be taken in a series of installments (monthly, quarterly, etc.) as long as the total distributions for the year are at least as much as the minimum required amount.
Calculating Your RMD
It is a good idea to withdrawal from your qualified plans automatically – if you do not meet the required minimum distribution withdrawals, the IRS will impose a penalty of 50% of the amount not withdrawn, plus the income taxes due.
To use this table, take your current age and multiply the RMD percentage by your total IRA account values. With the exception of #6 above, the resulting amount is your annual required minimum distribution for the year. As you can see it will go up each year by a small percentage.
Adapted from IRS Pub. 590
|
Age |
RMD |
||
|
Percentage of Qualified money required to be withdrawn |
|||
|
70 |
3.65% |
||
|
71 |
3.77% |
||
|
72 |
3.91% |
||
|
73 |
4.05% |
||
|
74 |
4.20% |
||
|
75 |
4.37% |
||
|
76 |
4.55% |
||
|
77 |
4.72% |
||
|
78 |
4.93% |
||
|
79 |
5.13% |
||
|
80 |
5.35% |
||
|
81 |
5.59% |
||
|
82 |
5.85% |
||
|
83 |
6.13% |
||
|
84 |
6.45% |
||
|
85 |
6.76% |
||
|
86 |
7.09% |
||
|
87 |
7.46% |
||
|
88 |
7.87% |
||
|
89 |
8.33% |
||
|
90 |
8.77% |
||
|
91 |
9.26% |
||
|
92 |
9.80% |
||
|
93 |
10.42% |
||
|
94 |
10.99% |
||
*Jeremy Smith is a Featured Advisor with Annuity123. AmeriShield agents discuss your complete insurance and risk tolerance as well as your goals for retirement and what you plan for your insurance products to do for you and your family before we discuss any products with you. We fully educate you on the differences in the types of fixed and indexed annuities that meet your specific situation and offer you “The Power of Choice” to achieve your goals