Don't forget to take MRDs by year end

Failure to take minimum required distributions on time may mean tax penalties.

  • Living in Retirement
  • 401(k)
  • IRA
  • Roth IRA
  • Traditional IRA
  • Facebook.
  • Twitter.
  • LinkedIn.
  • Google Plus
  • Print

December 30 is fast approaching. Have you taken your minimum required distribution (MRD) from your retirement account? Lots of people have not. Be warned: This can be a costly mistake, and one that may result in significant tax penalties.

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, or pay penalties of 50% on missed MRD amounts.1 This is why it’s important that you understand how MRDs work, and the timing of distributions.

How the amount is determined

Minimum required distributions, sometimes referred to as required minimum distributions (RMDs), 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 sole beneficiary for the entire distribution year, you can base your MRD on your joint life expectancy.

For inherited IRAs, the rules are different. (Learn more.)

Uniform lifetime table for minimum required distributions
Age 70 75 80 85 90 95 100 105
Years 27.4 22.9 18.7 14.8 11.4 8.6 6.3 4.5
Min. % 3.6% 4.4% 5.3% 6.8% 8.8% 11.6% 15.9% 22.2%
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 traditional IRAs, you must begin taking minimum required distributions by April 1 of the year following the year in which you turn 70½. The same generally holds true for 401(k) plans and other qualified retirement plans. However, if you wait until after December 31, you will have to take two MRDs 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 MRDs from your 401(k) until you retire.2 For all subsequent years, distributions must be made annually by December 31. Fidelity customers must complete MRD transactions by December 30 in 2016 as the deadline falls on a weekend. Remember to allow time for any trades to settle if you are selling investments to take your MRD.*

Tax penalties

Failure to withdraw the MRD annually by the applicable deadline may result in substantial tax penalties, which can equal 50% of the amount not distributed. All withdrawals of earnings and pretax contributions are taxed as ordinary income.

Learn more

Take action

  • Set up automatic MRDs from your Fidelity IRA (login required).
  • View, track and manage distributions from your retirement and inherited retirement accounts in our Retirement Distribution Center (login required).
  • Determine your projected annual minimum required distribution amounts with our MRD Calculator.
  • Facebook.
  • Twitter.
  • LinkedIn.
  • Google Plus
  • Print
1. Minimum required distribution rules do not apply to Roth accounts during the lifetime of the original owner or to participants in workplace retirement plans who are less than 5% owners until they retire. MRDs are also required from 403(b) and 457(b) plans, as well as SEP IRAs, SARSEPs, and SIMPLE IRA plans. Also, it should be noted that RMDs are a consideration for inherited IRAs.
2. See note 1.
Fidelity does not provide legal or tax advice. The information herein is general and educational in nature and should not be considered legal or tax advice. Tax laws and regulations are complex and subject to change, which can materially impact investment results. Fidelity cannot guarantee that the information herein is accurate, complete, or timely. Fidelity makes no warranties with regard to such information or results obtained by its use, and disclaims any liability arising out of your use of, or any tax position taken in reliance on, such information. Consult an attorney or tax professional regarding your specific situation.
* December 31, 2016 falls on a Saturday. Be sure to allow adequate time for your transactions to close.
Votes are submitted voluntarily by individuals and reflect their own opinion of the article's helpfulness. A percentage value for helpfulness will display once a sufficient number of votes have been submitted.

Fidelity Brokerage Services LLC, Member NYSE, SIPC, 900 Salem Street, Smithfield, RI 02917

601581.10.1
close
Please enter a valid e-mail address
Please enter a valid e-mail address
Important legal information about the e-mail you will be sending. By using this service, you agree to input your real e-mail address and only send it to people you know. It is a violation of law in some jurisdictions to falsely identify yourself in an e-mail. All information you provide will be used by Fidelity solely for the purpose of sending the e-mail on your behalf.The subject line of the e-mail you send will be "Fidelity.com: "

Your e-mail has been sent.
close

Your e-mail has been sent.