- If you're 70½, you may need to take required minimum distributions (RMDs) from certain retirement accounts.
- The deadline for taking RMDs is December 31 or, for the first withdrawal only, April 1.
- 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 distributions (RMDs) from your retirement accounts? 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 for certain securities, if you need to sell positions to generate cash for the RMD, you have until market close on December 27. For equities, customers would need to sell by market close on Friday, December 27, to have the cash available on the December 31, and one-day settlement mutual funds would need to be sold by December 30. 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, such as traditional IRAs and 401(k) plans. If you don't take enough, you may pay a 50% IRS penalty on the amount not taken.* This is why it's important that you understand how RMDs work, and the timing of distributions.
How the amount is determined
Your life expectancy factor is taken from the IRS Uniform Lifetime Table. However, if your spouse is your only primary beneficiary and is 10 years younger than you, your life expectancy factor is taken from the IRS Joint Life Expectancy Table.
Tip: For inherited IRAs, the rules are different. (Learn more)
|Uniform lifetime table for required minimum distributions|
|The table above shows, in 5-year increments, the required minimum 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 3-month extension until April 1 of the following year. However, if you wait until after December 31 to take your RMD, you will have to take 2 RMDs in one year, which could affect your income tax bracket or Medicare premiums.
If you are over 70½ and still working, you can generally delay your RMDs from your 401(k) or other qualified retirement plan until after you retire.* 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.