A. When you reach the age of 70 ½ the IRS requires that you start taking distributions from your qualified retirement accounts (IRA accounts, 401ks, 457 plans or other tax-deferred retirement savings plans like a TSA, SEP or SIMPLE). This is called a required minimum distribution, or RMD.
When must I start taking Required Minimum Distributions?
Your first required minimum distribution must occur by April 1st of the year after you reach age 70 ½.
Example: Bob’s birthday is in February, thus he turns 70 ½ in August. His first distribution must occur by April 1st of the following year, although he could take this distribution in the current year. If Bob waits until April 1st of the year following the year he turns 70 ½ he will have to take a required minimum distribution for both years. His decision to wait and take two distributions in the second year, or take his first distribution in the year he turns 70 ½ would be made based primarily on his tax situation.
What amount must I withdraw as a Required Minimum Distribution?
The amount of your required distribution is based on two things: your prior year’s December 31st account balance, and an IRS table based on your age.
You use your age as of your birthday in the year of your distribution. So if you are taking a distribution in 2014, use the age that you attain on your birthday that occurs in 2014.
Use our free online RMD calculator to figure out the amount you must withdraw
Penalty For Not Taking A Required Minimum Distribution
The penalty for not taking a required minimum distribution is a tax of 50% on the amount that was not withdrawn in time.