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CORNERSTONES OF BUILDING FOR RETIREMENT: RMD’s & You
WHAT ARE RMD’S ?
RMD stands for Require Minimum Distribution. An RMD is the minimum amount you must withdraw each year from certain retirement accounts once you reach a specific age, as determined by the IRS.
WHAT ACCOUNTS CAN HAVE A RMD?
- Traditional IRAs
- SEP IRAs
- SIMPLE IRAs
- Rollover IRAs
- Traditional 401(k) plans
- Most 403(b) and 457(b) plans
- Variable annuities held in an IRA (“qualified annuities”)
- Profit-sharing plans
- Small business retirement accounts
WHEN DO I HAVE TO TAKE THE RMD?
While generally your RMD is due by December 31st of your starting year (when you turn 73 or 75 depending on your birth year), the IRS provides flexibility for this first distribution only:
- Option 1: Take your first RMD by December 31st of your starting year
- Option 2: Delay until April 1st of the following year
|
Year of Birth |
RMD Starting Age |
| 1950 or earlier | 72 |
| 1951-1959 | 73 |
| 1960 or later | 75 |
You can take the RMD’s either monthly or yearly as long as you take at least the minimum yearly amount .
WHAT IF YOU DON’T TAKE RMD’S?
If you do not take the distribution from the retirement account, the IRS will charge you a penalty tax of 25% on what you should have taken. If you take the distribution late, but before a two year window ends from the date you were required to take the distribution, they will only charge you 10% on the amount you should have taken.
RMD’S CAN AFFECT YOUR MEDICARE PREMIUMS?
Yes—when taking your RMD, it is important to understand that beyond impacting your taxes, it also increases your MAGI (Modified Adjusted Gross Income). This increase can push you into a higher Income-Related Monthly Adjustment Amount (IRMAA), which determines your Part B and Part D premiums.