Required Minimum Distributions

The plain answer

Required minimum distributions, or RMDs, are minimum annual withdrawals that current law requires from many traditional retirement accounts after the applicable starting age. They generally create ordinary taxable income because traditional account contributions and growth were usually not taxed before withdrawal.

Age rules have changed. The RMD starting age is set by current law, so confirm the age that applies to you rather than relying on an old article or a relative’s experience.

How it actually works

An RMD is generally calculated by dividing the account’s prior year-end balance by an IRS life expectancy factor. The factor depends on the table that applies to your situation. Your custodian may calculate an amount, but you remain responsible for taking the correct distribution on time.

Traditional IRAs generally allow you to calculate the RMD for each IRA and take the combined amount from one or more of those IRAs. Employer plans can have different aggregation rules, so do not assume that one withdrawal satisfies every plan’s RMD.

The first required distribution may have a later deadline than later annual distributions. Delaying it can cause two taxable RMDs to fall in one calendar year, which can increase taxable income and affect other income-based costs or taxes.

An RMD cannot be rolled over or converted to a Roth account. If you plan a Roth conversion in an RMD year, the year’s RMD generally must come out first. Special rules apply to inherited retirement accounts, so beneficiary deadlines should be checked separately.

What this means for you

List every traditional IRA and employer retirement plan, record each prior year-end balance, and confirm which accounts can be aggregated. Then confirm your applicable starting age, deadline, and life expectancy table under current law.

Plan for the tax bill as well as the withdrawal. Tax withholding may help cover that bill, but withholding does not change the gross RMD you must satisfy. You may reinvest money you do not need in a taxable account, but the distribution remains taxable.

Coordinate RMDs with other withdrawals, charitable giving, and Roth conversions. Tax planning should support your spending and estate goals. Do not spend a dollar to save thirty cents in taxes.

Common mistakes

• Using an outdated RMD starting age
• Calculating from the current balance instead of the prior year-end balance
• Assuming one employer plan distribution satisfies the RMD for every account
• Trying to roll an RMD into another retirement account or convert it to Roth
• Missing an inherited account rule because the original owner had not started RMDs
• Delaying the first RMD without considering the tax effect of two distributions in one year

Related pages

• Retirement withdrawal strategies
• Roth conversions
• Traditional vs. Roth: the tax question
• How an IRA works