Required Minimum Distributions

If you are a SavvyReader that is within five years of retirement, you should be developing an order of withdrawal plan for your various retirement accounts.  A part of that withdrawal plan will include your Social Security pension and it would behoove you to be aware of the RMD requirement.

And if you are a SavvyReader that is quite a few years away from retirement, you should share this information with your parents or grandparents as they approach 70½ years of age.

In short, Required Minimum Distributions (RMD) is a condition imposed on retirement accounts by the Internal Revenue Service (IRS).

The RMD is the amount the IRS mandates the owner of an individual retirement account must withdraw each year. Traditional IRAs, SEP and SIMPLE accounts, as well as employer sponsored retirement plans, such as 401(k) plans are subject to RMD.

The RMD minimum IRA distribution begins once the qualified account owner reaches age 70½. At that age, IRA withdrawals are required to begin no later than April 1 of the following year.

One caveat, if you are still working at 70½ and still contributing to a defined contribution plan such as a 401(k) or 403(b), you can postpone your RMD. Provided that you do not own more than five percent of a company and your retirement plan permits it, you can delay the RMDs until April 1 after the year that you leave the service of that company.

Keep in mind however, that the delay only applies to the 401(k) plan of the company for which you are still working. If you have other 401(k) benefits from previous employers, you will still be required to take your RMD from those accounts at 70½.

Your best course of action is to research the latest information and your options on the IRA website, or discuss with a financial planner if you find yourself in this situation as you approach 70 years of age.

It is often stated that Roth IRAs are not subject to Required Minimum Distributions. That is not completely accurate. While Roth IRAs are not subject to Required Minimum Distributions during the owner’s lifetime (the most valuable attribute of the Roth IRA to many), they are subject to RMD after the owner’s death. Please visit the IRS website for the latest information and any changes to the RMD.

RMD Comparison Chart (IRAs vs. Defined Contribution Plans)

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