Navigating Required Minimum Distributions (RMDs)

Lesson 2: Navigating Required Minimum Distributions (RMDs)

Required Minimum Distributions (RMDs) are annual withdrawals you must start taking from most tax-deferred retirement accounts once you reach a certain age. Understanding RMDs is crucial to avoid potential penalties.

What You Should Know:

• When They Begin: Currently, RMDs generally begin when you reach age 73.

• Which Accounts Are Affected: RMD rules apply to traditional IRAs, SEP IRAs, SIMPLE IRAs, and most employer-sponsored retirement plans (like 401(k)s and 403(b)s). Roth IRAs do not have RMDs during the owner's lifetime.

• How RMDs Are Calculated: The RMD amount is calculated annually based on your account balance at the end of the previous year and your life expectancy, as determined by IRS tables.

• The Deadline for Taking Your RMD: Your first RMD can be delayed until April 1st of the year following the year you turn 73. However, subsequent RMDs must be taken by December 31st of each year. Delaying your first RMD means you'll have two RMDs in that following year.

• Penalties for Non-Compliance: Failing to take your full RMD on time can result in a significant excise tax (25%, potentially reduced to 10% if corrected promptly) on the amount not distributed.

• RMDs for Beneficiaries: If you inherit a retirement account, you may also be subject to RMD rules, which vary depending on your relationship to the deceased and their age at the time of death.

Key Takeaway: Be aware of your RMD obligations and deadlines. Work with your financial 

RMD table and calculator spreadsheet (estimate)