When you reach age 70½, you're required to withdraw a certain amount of money from your retirement accounts each year. That amount is called a required minimum distribution, or RMD.
RMD rules apply to tax-deferred retirement accounts:
- Traditional IRAs
- Rollover IRAs
- SIMPLE IRAs
- SEP IRAs
- Most small-business accounts
- Most 401(k) and 403(b) plans
The deadline for taking RMDs is December 31 each year. If you have an IRA, you may delay taking your first RMD (and only your first) until April 1 of the year after you turn 70½. If you choose to delay your first RMD, you'll have to take your first and second RMD in the same tax year. To understand how delaying your first RMD impacts your taxes and future RMDs, review your options.
For your workplace retirement accounts, if you are still working and don’t own more than 5% of the business you’re employed by, you may be able to delay taking an RMD until April 1 of the year after you retire. Keep in mind, this rule does not apply to IRAs or plans with companies you no longer work for.
Don't miss your RMD deadline, because regardless of your account type, the IRS penalty may be severe—50% of the amount not taken on time.
Consider creating a retirement income strategy for taking withdrawals that includes all of your retirement income sources.
Calculating your RMD amount
Your RMD amount is calculated by dividing your tax-deferred retirement account balance as of December 31 of last year by your life expectancy factor.
Your life expectancy factor is taken from the IRS Uniform Lifetime Table (PDF). However, if your spouse is the only primary beneficiary and he or she is 10 years younger than you, your life expectancy factor is taken from the IRS Joint Life Expectancy Table (PDF).
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Don't have a Fidelity account? Estimate your RMD amount by using our RMD Calculator.
How RMDs are taxed
The IRS taxes RMDs as ordinary income. This means that withdrawals will count toward your total taxable income for the year. They will be taxed at your applicable individual federal income tax rate and may also be subject to state and local taxes. If you made nondeductible contributions to your IRA, you must calculate your RMD based on the total balance, but your taxable income may be reduced proportionately for the after-tax contributions.
Keep in mind that this income increase may push you into a higher tax bracket and may impact the taxes you pay for your Social Security or Medicare.
If you'd like to reduce the effect of RMDs on your taxes, consider making a qualified charitable distribution (QCD). A QCD excludes the amount you donate from taxable income and can be counted toward satisfying your RMD for the year, as long as certain rules are met.
A tax advisor can help you determine when to take RMDs and if a QCD is appropriate for your situation.
RMDs for other retirement accounts
For Roth IRAs, there are no RMDs if you're the original owner. Withdrawals from a Roth IRA will not help satisfy your annual RMD requirement for your tax-deferred IRA. However, if you have inherited a Roth IRA, you are subject to RMD rules.
If you inherit an IRA (including Roth IRAs), you may be required to begin taking RMDs by a certain date. Learn more about RMD Rules for Inherited IRAs