Required Minimum Distributions

By Anthony L. Scialabba IV, Esq., QKA

 

What are required minimum distributions (“RMDs”) and how are they calculated?

A RMD is the amount of money retirement plan participants and owners of employer-sponsored retirement plans and individual retirement arrangements (“IRAs”) are responsible for accurately and timely withdrawing each year. Including, but not limited to:

  • Profit-Sharing
  • 401(k)
  • 403(b)
  • 457(b)
  • Simplified Employee Pension Plan (“SEP”)
  • Salary Reduction Simplified Employee Pension Plan (“SARSEP”)
  • Traditional IRA
  • Simplified Employee Pension Individual Retirement Arrangement (“SIMPLE IRA”)

 

A RMD is normally calculated by dividing the previous December 31 balance of that retirement plan account or IRA by a life expectancy factor. This factor is published by the Internal Revenue Service in Publication 590-B, Distributions from Individual Retirement Arrangements (IRAs).

 

What occurs if a RMD is not withdrawn or is not timely withdrawn?

 

If a person fails to withdraw the accurate amount or fails to withdraw on a timely basis, they will incur a tax of 50% on the amount not withdrawn. The retirement plan may become disqualified as well.

 

When must RMDs be withdrawn?

 

In general, a person must begin withdrawing from a retirement plan that is subject to the RMD requirement by the later of April 1 of the year following the year in which they reach age 72 or the year in which they retire. If a person is more than a 5% owner, they must withdraw upon reaching age 72, regardless of employment status. For all subsequent years, the withdrawal must occur by December 31 of the year.

 

What are some of the other rules in connection with RMDs?

 

In a 401(k) plan or 457(b) plan, a person must withdraw RMDs separately from each account. An owner of an IRA may withdraw the total RMD amount from one or more IRAs. Similarly, an owner of a 403(b) plan may withdraw the total RMD amount from one or more 403(b) plans.

 

If you have any questions or comments with regard to RMDs, please email clientservices@retirewelltpa.com.