If you are close to reaching the age of 70½ and have an IRA, SEP IRA or a SIMPLE IRA, or other pre-tax employer-sponsored retirement accounts, you need to start thinking about the required minimum distributions that you will have to start taking from each account. If you have a Roth IRA, it does not require a withdrawal until after the death of the owner.
Calculating the amount is easy, and the required minimum distribution worksheets needed to determine the amount are located on the IRS website, or by checking out the links below. And you can double-check yourself by using a simple RMD calculator like the one on Kiplinger.com.
How Do You Calculate RMDs?
If your spouse is the sole beneficiary of your IRA and is more than 10 years younger than you, there is a specific worksheet to determine your RMD, which can be found here. This worksheet’s five-step process walks you through how to calculate the RMD for each individual account you have, so you can figure out your total required minimum distribution amount.
Everyone else should use this worksheet. This is a quick and easy three-step worksheet to calculate your individual accounts to reach your total RMD.
All calculations are based on your life expectancy at the time of the necessary distribution, which can be found on the IRS life expectancy table linked within each worksheet.
In order to calculate your RMD correctly, you will have to know what each pre-tax IRA account’s ending balance was on Dec. 31 of the prior year, so make sure you have that information handy. As the account holder, you are responsible for accurately calculating the distribution amount, so be sure the figures are correct prior to completing your worksheets.
When Do You Take Your RMD?
If you will be turning 70½ in 2019, you need to be aware that you must take your required minimum distribution by April 1 of next year. Every year thereafter, your distribution must be completed by Dec. 31 of that year.
For example, if you turn 70 in June 2019, that would mean you are 70½ in December 2019, requiring your first distribution must be initiated by April 1, 2020. If you turn 70 in December 2019, you won’t be 70½ until June 2020, which means your first distribution must occur by April 1, 2021. As mentioned above, each subsequent distribution would need to be made annually by Dec. 31.
If you have any doubts, you can just plug your birthdate into the tool on Kiplinger.com to find out when your RMD is due.
Once you’ve determined your RMD for all your individual accounts, you can decide if you would like to make the withdrawal from one or more of these accounts. The IRS does not care which accounts the money comes from — just one account or a combination — as long as you withdraw the total amount to meet the required minimum distribution.
Some Important Things to Consider
If you are 70½ or older and still working, you don’t have to take RMDs under certain circumstances. If you have an employer-sponsored 401(k) or 403(b) and own less than 5% of the company, you can continue to contribute and choose to not take RMDs from that account. You will have to take distributions once you leave that employer.
If you inherited a traditional IRA from a loved one who was over 70½ and subject to RMDs, you may be subject to RMDs as well. More information can be found here on the IRS website.
If you inherited a Roth IRA, your options vary depending on whom you inherited it from and how old they were when they died. This chart on the IRS website can help determine when and how you need to take the required minimum distribution. Read it carefully and consult a tax adviser if you aren’t sure because you can be penalized 50% of the distribution amount for failure to take the RMD.
Once you have your calculated required minimum distribution, you are allowed to take out any amount above that figure, however, the excess distribution cannot be applied toward future required minimum distributions.
You will not have to pay taxes on any Roth IRA distribution because you initially funded those accounts with post-tax dollars. If you have a combination of pre-tax and post-tax accounts, take each into consideration when deciding to withdraw any amount over your required minimum distribution, and how that excess will affect your tax liability. It is important to revisit this every year.
Marguerita M. Cheng is the Chief Executive Officer at Blue Ocean Global Wealth. She is a CFP® professional, a Chartered Retirement Planning Counselor℠ and a Retirement Income Certified Professional. She helps educate the public, policymakers and media about the benefits of competent, ethical financial planning.
Alaska Airlines to Buy Hawaiian: Get Bonus Miles Now
How to use the Alaska Airlines credit card and frequent flyer program to save on trips to Hawaii, Alaska and beyond.
By Ellen Kennedy Published
11 Reasons to Consider a 1031 Exchange
Deferring capital gains taxes might be at the top of the list, but growing your portfolio and your wealth and helping with estate planning are also compelling reasons.
By Daniel Goodwin Published
Estate Planning and the Legal Quirks of Retiree Cohabitation
Creating an estate plan for an unmarried couple is already challenging, but when the cohabitating couple are in their golden years, it’s especially tricky.
By David Handler, J.D. Published
Seven Financial Planning Stops to Put on Your Map to Financial Security
Creating a comprehensive plan is just the start, though. Checking in regularly to make sure you’re still on track is imperative.
By Michael E. Lewis II, CFP®, CLU®, ChFC® Published
How to Measure the Health of Your Retirement Plan
These five key indicators can help you make decisions based on the overall performance of your retirement plan rather than individual variables.
By Brian Skrobonja, Chartered Financial Consultant (ChFC®) Published
How Might the Great Wealth Transfer Change Society?
As $84 trillion in assets move from Baby Boomers to younger generations, we could see a greater emphasis on financial technology and investing based on values.
By Jennifer Wines, JD, CPWA® Published
Why More Retirees Might Come Out of Retirement
It’s often not solely because of financial reasons, but because of a lack of purpose in retirement. This financial expert can relate.
By Chris Blunt Published
Five Simple Year-End Tax Tips to Set Up a Successful 2024
If you wait until the new year, you may miss out on some valuable tax planning strategies. Here’s what you need to know before closing out 2023.
By Julie Virta, CFP®, CFA, CTFA Published
Six Estate Planning Tips for Younger Generations
Millennials and Gen Zers are taking their estate planning seriously. These tips can help make the process seem less daunting.
By David Weinstock, CFP®, AEP®, CPA Published
Year-End Tax Planning for a Financially Healthier Retirement
Getting your tax ducks in a row for the end of the year can decrease your tax liability and make the most of your income, now and in retirement.
By Ryan Marston, Investment Adviser Representative Published