critical date is approaching for those 70 1/2 and older.
Dec. 31 is the deadline for those with retirement plans
to take their annual required minimum distribution, or
RMD, from their accounts.
known as minimum required distribution, or MRD, this is
the mandatory minimum yearly withdrawal that you must
make from your traditional IRA and defined-contribution
plans, such as 401(k)s or 403(b)s, starting in the year
you turn 70 1/2.
IRS requires this because it wants its money after years
of deferred taxes on the funds.
exchange for this tax deferral, you are required to take
the money out and pay tax on it during your retirement
years," said Tom Murphy, certified financial
planner at Murphy & Sylvest in Dallas.
you don’t take the money out by the deadline, you’ll
suffer dearly for it. The IRS penalty is 50 percent of
the amount that you should have withdrawn.
you had a $10,000 MRD and you failed to take that
$10,000, the IRS would be looking for a $5,000
penalty," said Maura Cassidy, director of
retirement at Fidelity Investments.
put, the RMD requirement applies to any retirement
account in which you’ve contributed tax-deferred money
or had tax-deferred earnings.
does not apply to Roth IRAs during the owner’s
lifetime but does after the account owner’s death.
that, the rules regarding RMDs are complicated, so it’s
a good idea to consult a financial adviser.
an RMD is calculated for each retirement account by
dividing the account’s balance on the previous Dec. 31
by a life expectancy factor that the IRS publishes in
example, if you are 71 years old and your IRA balance
was $100,000 on Dec. 31, 2013, you divide that amount by
26.5, making your 2014 RMD $3,773.58, which must be
taken out of the account by Dec. 31, 2014," Murphy
said. "The IRS tables are designed to force all the
money out of the retirement plans over your life
spouse’s age also is important when calculating your
RMD, and it affects which IRS table you need to use.
your spouse is the sole beneficiary of your retirement
plan and he or she is more than 10 years younger than
you, you use the Joint and Last Survivor Table to
calculate your RMD.
your spouse is more than 10 years younger than you, then
the amount that you have to take out is less,"
Cassidy said. "The idea is that IRA is covering for
two lives and it’s a longer life expectancy. They
allow you to stretch it out longer because of the
your spouse isn’t the only beneficiary or isn’t more
than 10 years younger than you, you use the Uniform
this is your first time taking an RMD, you don’t have
to worry about the Dec. 31 deadline because you have
until April 1 to withdraw the money.
caution people: If they do delay it, they’ll have to
take two next year," Cassidy said. "They’ll
have to take the 2014 MRD by April 1, and then they’d
have to take their 2015 MRD by Dec. 31."
that could spell trouble come tax time because "you
would have to pay taxes on both distributions in one
year," Murphy said.
taking two RMDs in the same year could push you into a
higher tax bracket.
most people take their first distribution in the year
they turn 701/2 and do not postpone it to the next
year," Murphy said.
you have any holdings in the account that you need to
liquidate in order to have the MRD distributed, I would
definitely recommend taking that action now because it
can take several days to have the holdings settle and be
able to come out of the account," Cassidy said.
"You don’t want to come up on the last few days
of the year without having the right amount ready to
what if you have more than one type of retirement plan?
is common. You may have several IRAs and 401(k)s, and
the rules for each are different.
all your plans are IRAs, you may take your RMD out of
one plan, out of all of them or any combination,"
other words, the RMDs for your IRAs must be calculated
separately, but the total can be taken out of one of the
IRAs or any combination of the accounts.
example, let’s say you have two IRAs and the RMD for
each is $5,000. You can take it all from one account, or
take a portion from each IRA as long as the total adds
up to $10,000.
rules are different for 401(k)s: An RMD must be taken
separately from each of them.
in the previous example, you would have to take the
entire $5,000 from the 401(k) for which the RMD is
a 401(k), it’s more plan-specific," said Cassidy.
"We always recommend people talk to the plan
provider if they have any questions."
you are over 70 1/2 and still working, you are not
required to take distributions from an
employer-sponsored plan unless you own 5 percent or more
of the company," Murphy said. "You are,
however, required to take RMDs from any IRAs."
are benefits to delaying withdrawal of the money.
you are working and are younger than 70 1/2, then most
of the time you will want to defer taking Social
Security and should not take retirement plan
distributions, allowing the money to compound,"
RMD requirement applies to:
(Savings Incentive Match Plan for Employees) IRAs
(Simplified Employee Pension Plan) IRAs
401(k) and 403(b) plans
help from IRS Publication 590: Individual Retirement