If you've saved in an IRA or workplace retirement plan, the IRS eventually requires you to start withdrawing from it. These withdrawals are called required minimum distributions, or RMDs. Here are the basics.
What is an RMD?
An RMD is the minimum amount you must withdraw from certain tax-deferred retirement accounts each year once you reach a set age. The amount is generally based on your account balance at the end of the prior year and an IRS life-expectancy table.
When do RMDs start?
Under the SECURE 2.0 Act, RMDs generally begin at age 73. For people born in 1960 or later, the starting age is scheduled to be 75.
The first-year April 1 rule
You can delay your first RMD until April 1 of the year after you reach your RMD age. If you wait, you'll take two distributions in that year: the delayed first one and the second year's, which is due by December 31. That can raise your taxable income for the year.
The December 31 deadline
After the first year, each RMD is generally due by December 31.
Which accounts are covered?
RMDs generally apply to traditional IRAs, SEP and SIMPLE IRAs, and most employer plans such as 401(k) and 403(b) plans. Roth IRAs do not require withdrawals during the original owner's lifetime. Inherited accounts have their own rules.
What if I miss one?
A missed RMD can trigger an IRS excise tax of 25% of the amount not taken. That can drop to 10% if the shortfall is corrected in a timely way. Talk with your tax professional about the correction process.
Qualified charitable distributions
If you're 70½ or older and give to charity, a qualified charitable distribution (QCD) sent directly from your IRA to a qualified charity can count toward your RMD, and it isn't included in your taxable income, within annual limits.
How RMDs fit your plan
RMD income can affect your tax bracket and your Medicare premiums (see our page on Medicare premiums and IRMAA). Our retirement planning services look at withdrawals as part of your overall income plan. Call Renaud & Company, LLC at (636) 240-5055 or visit our office at 2112 Bryan Valley Commercial Drive in O'Fallon. We are fiduciaries.
Renaud & Company, LLC is an SEC-registered investment adviser. Registration does not imply a certain level of skill or training. This material is for educational purposes only and is not individualized investment, tax or legal advice. Investing involves risk, including possible loss of principal.