When do I need to start taking my Required Minimum Distributions? How much am I going to have to take out for my RMD? These are a couple of the most common questions we receive when talking with retiree's and those who are in the final planning stages of retirement. Fortunately, getting the correct answer(s) is not that difficult if you know where to look. The first place to go would be the IRS website for Required Minimum Distributions.
Calculating your Required Minimum Distributions.
Your RMD is determined by dividing the total value of your traditional IRA's and/or 401(k)'s as of 12/31 of the previous year, by a withdrawal factor given by the IRS. This withdrawal factor changes every year as you get older and is also different for those whose spouse is the sole beneficiary AND is more than 10 years younger. The IRS website offers these two easy to use worksheets to determine your RMD but, for most, you will probably find the RMD calculator on the FINRA website to be much easier to use.
When do I need to start taking my Required Minimum Distributions?
The IRS has done a great job at confusing people with the rule that you must begin taking RMDs by April 1st of the year following the year you reach age 70½. To summarize that rule and put some hard numbers in for you, it is saying:
If your birthday is between Jan 01 & June 30, you are required to take a minimum distribution by April 01 of the year you turn 71.
- If your birthday is between July 01 & Dec 31, you are required to take a minimum distribution by April 01 of the year you turn 72.
Stay with me though, because we are going to build on both of those summary sentences as we go along. Here is where many people (financial professionals included) often get tripped up.
The actual RMD rule states that you must receive at least a minimum amount for each year starting with the year you reach age 70½. Therefore, if you deferred taking your initial RMD until the year following the year you turned 70½, (ie: anytime between Jan 01 - Apr 01 of the required distribution year) you will generally have to take another distribution by Dec 31 of that same year. (So, if you took your first distribution in March of 2015, you will be required to take your next distribution by Dec 31, 2015, and by Dec 31 of each of subsequent year.) In summary, the IRS requires you to take the minimum distribution by Dec 31 each year in order to avoid penalties, however, they will grant you a (penalty free) three month extension for your first RMD only.
Kevin Warman
(last updated 4/28/2015)