Once you turn age 70½, the IRS requires you to start taking annual required minimum distributions (RMDs) of at least a minimum amount for each tax-deferred retirement account you own. You may take the RMD from each account, or with some types of accounts you may calculate the RMD separately for each account and withdraw the total amount from one or more of them. Failure to comply could trigger a substantial penalty.
Some of the most frequently asked questions about RMDs are:
Which retirement accounts are subject to RMDs?
Accounts subject to RMDs include Traditional and SEP IRAs, Keogh plan accounts and accounts in workplace retirement savings plans, such as 403(b), 457(b), 401(a) and 401(k) plans.
Also, if certain plan rules apply, contributions and earnings credited to a 403(b) plan account before 1987 don't have to be distributed from the account until December 31 of the year you turn 75 or, if later, April 1 following the year you retire.
Are there specific deadlines for taking RMDs?
Generally, your first RMD may be deferred until April 1 following the year you turn 70½. For example, if you turn 70½ in 2018, you have until April 1, 2019 to start taking RMDs.
If you're still working at 70½, your current employer's retirement plan may allow you to wait until after you retire to take your first RMD from that plan. In this case, you have until April 1, the year after you retire, to take your first RMD. In the meantime, you may be able to consolidate tax-deferred money from other retirement accounts into your current employer's retirement plan. This allows you to put off taking RMDs on the transferred money until retirement.
Prior to rolling over, consider your other options. You may also be able to leave money in your current plan, withdraw cash or roll over the assets to your new employer’s plan if one is available and rollovers are permitted. Compare the differences in investment options, services, fees and expenses, withdrawal options, required minimum distributions, other plan features, and tax treatment. Speak with a TIAA Consultant and your tax advisor regarding your situation.
If you own 5% or more of a business that sponsors a retirement plan, your RMDs for that plan must start by April 1, the year after you turn 70½, even if you're still working.
What's the penalty for not taking an RMD by the deadline?
If you don’t take the full amount of an RMD by the deadline, you’ll be penalized an excise tax equal to 50% of the amount required that should be taken.
What happens if I defer my first RMD until April of the following year?
If you put off taking your first RMD until sometime between January 1 and April 1 the year after you turn 70½ or retire, you must also take the RMD for that year by December 31. In other words, deferring the RMD causes two RMDs in the second year. Each year thereafter you must take that year's RMD by December 31.
How do I know how much I need to take out?
The amount of an RMD varies from year to year. RMD is based on: your age, whether you are the original account owner, or an inheriting spouse, or non-spouse beneficiary, your life expectancy as determined by specific IRS tables, and your account balance as of December 31 in the previous year.
Can I withdraw more than the required minimum?
Yes. You can withdraw more than the required minimum.
Can I take an RMD from one account instead of separately from multiple accounts?
If you have more than one IRA, you must calculate each IRA's RMD separately. You can though take out the total required from as few or as many of your IRAs as you wish.
Likewise, if you have more than one 403(b) account, you must calculate each account's RMD separately. You can, however, withdraw the total required amount from as few or as many of your 403(b) accounts as you wish.
RMDs are calculated differently for inherited accounts. In this instance you can only combine accounts that are inherited from the same person, and these must also be of the same type.
RMDs for accounts other than IRAs and 403(b) cannot be aggregated. They must be taken separately from each account.
Can I take money from a required minimum distribution and roll over to another retirement account if I don’t wish to spend that money?
No. Funds from a RMD cannot be rolled over to other retirement plans or IRAs. After taking the RMD, however, you’re free to roll the balance of the account into another retirement account if you wish.
Consider seeking guidance from a professional financial advisor.
RMDs can be challenging to plan for. A professional financial advisor can offer valuable guidance in this area. You should also visit the IRS site on RMDs