- If you're 70½, you may need to take RMDs from certain retirement accounts
- The deadline for taking RMDs is December 31 or April 1, depending on your age
- The withdrawal amount of RMDs also depends on your age
- Failure to take RMDs on time can result in substantial tax penalties
The end of the year is fast approaching. Have you taken your required minimum distribution (RMD) from your retirement account? Lots of people have not. Be warned: This can be a costly mistake, and one that may result in significant IRS penalties.
To avoid these penalties, please note that this year December 31 falls on a weekend, so if you need to sell positions to generate cash for the RMD, you have until markets close on December 29. The RMD must be taken by December 31.
Beginning when you turn 70½, IRS regulations generally require you to withdraw a minimum amount of money each year from your tax-deferred retirement accounts, like traditional IRAs and 401(k) plans. If you don't take enough, you may pay a 50% IRS penalty on the amount not taken.1 This is why it's important that you understand how RMDs work, and the timing of distributions.
How the amount is determined
Required minimum distributions are determined by your age, your account balance, and your life expectancy. If you have a spousal beneficiary who is more than 10 years younger than you and is the only beneficiary for the entire distribution year, you can base your RMD on your joint life expectancy.
Tip: For inherited IRAs, the rules are different. (Learn more)
|Uniform lifetime table for required minimum distributions|
|The table above shows, in five year increments, the minimum required distribution periods (based on age and the expected number of years for distributions) and percentages for tax. For a more complete picture, please visit the Uniform Lifetime Table.|
Deadlines for withdrawals
For IRAs, the RMD deadline is December 31 each year. For your first distribution (and only your first), you get a three month extension until April 1 of the following year. The same generally holds true for 401(k) plans and other qualified retirement plans. However, if you wait until after December 31 to take your RMD, you will have to take two RMDs in one year, which could affect your income tax bracket or Medicare eligibility.
If you are over 70½ and still working, you can generally delay your RMDs from your 401(k) until after you retire.1 For all subsequent years, distributions must be made annually by December 31. Don't forget to also allow time for any trades to settle if you are selling investments.*
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