- How much do I need to withdraw? RMDs will vary from person to person and account to account because they’re based on your age and the value of your account on December 31 of the previous year. It’s a good idea to be aware of the IRA and workplace retirement plan minimum distribution rules that apply to you. Worksheets and tables are available on the IRS website. Your RMDs should be calculated each year based on your account balance at the end of the previous year, your current age, and your life expectancy. It’s important to plan properly for these annual distributions if you want to avoid paying penalties and excess taxes.
- Are there exceptions? Of course. A Roth IRA has no RMDs during the owner’s lifetime. However, Roth IRAs are subject to RMDs after the owner dies, and the same 50% penalty will apply if the beneficiary of the Roth IRA does not take the RMDs.
- How will it affect my taxes? IRA RMDs usually count as ordinary income in the year you receive the distribution. The RMD will be added to all your other income for that year and will be taxed according to your tax bracket. If you made nondeductible IRA contributions or after-tax contributions to your company retirement plan, the amount of your contribution will not be taxable, but the earnings are. For your IRA, review your IRS Form 8606 to calculate how much of your RMD would be taxable. For your company retirement plan, contact your plan administrator to determine what amount is nontaxable.
- Will this impact my Social Security check? It definitely could. RMDs increase your taxable income, which may push you into a higher tax bracket. That can impact other retirement benefits like Social Security and Medicare.
- What is the deadline to take the RMD? Your first IRA required minimum distribution is due by April 1 the year after you turn 72. After that first year, the annual deadline is December 31. Consider taking your first distribution by December 31 the year you turn 72 if you want to avoid having two taxable distributions in the same year. Similar rules apply to taking RMDs from company retirement plans. The difference is you may need to withdraw your first RMD by April 1 of the year after you turn 72 or retire, if your employer’s plan allows it.
- What is the penalty? It’s a big one, which is why it’s important to make sure you adhere to the guidelines. If you don’t take your full RMD by the deadline, you may end up paying a 50% tax on the amount you failed to take, as well as any applicable income taxes on the entire amount of the distribution.
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