What You Need To Know About Required Minimum Distribution

Although many retired people depend on withdrawals from retirement accounts to provide income when they stop working, some have pensions or other sources of income that allow them to delay withdrawing from their retirement accounts until later dates. If this is your situation, you may be wondering when you will need to start to draw from these accounts. Every retirement account owner will need to begin drawing at age 72, if they have not begun taking their required minimum distribution.

What is an RMD?

A Required Minimum Distribution or RMD is an amount of money that must be withdrawn from a tax deferred retirement account annually beginning the year you reach age 72.  In the past the age was 70 ½, however this changed to age 72 in 2020.  Your very first RMD at age 72 needs to be taken by April 1 of the following year.  After this, your RMD needs to be done by December 31 each year.

Why do I have to take a distribution if I don’t need the money?

The purpose of the RMD rules is to ensure that people do not accumulate retirement accounts and defer taxation indefinitely.  RMDs force the holder to take all or a portion of their accounts as taxable distributions while alive.  Since these types of accounts were accumulated with pre-tax dollars, it makes sense that you will need to pay tax at some point within your own lifetime.

Tax deferred retirement accounts include (Non-Roth) traditional IRA’s (IRA based business retirement accounts: SEPs, SARSEPS, SIMPLE IRAS), 401k plans, 403(b) plans, 457(b) plans, and profit-sharing plans.

The distribution amount is calculated annually based on your age and the year-end (December 31st) value of your retirement account. 

Inherited IRAs

If you inherited an IRA or other retirement account from a deceased loved one, you should know that there are special rules that exist for required distributions.  These rules have changed over the years and are dependent on when the original owner passed away.  Roth IRAs are typically exempt from RMD rules; however, an inherited Roth IRA has required distribution rules as well.

What if I forget to take my RMD?

Failure to take the RMD in full in any given year will result in a 50% tax penalty in addition to the regular income taxes that are due on the money that should have been withdrawn. You will likely get a letter at the beginning of the year stating how much you will need to take before the end of the year.  Keep in mind, though, that this is your responsibility; do not rely on your custodian to be sure your RMD is taken. You may be able to set it up to happen automatically to avoid a costly penalty. Talk to a trusted advisor on how best to plan for your RMD.

Nathan Deets, CFP, Advisors Management Group

Nathan Deets CFP

Investment Advisor Representative & Tax Preparer


Nathan joined the firm in 2006. As an Investment Advisor Representative, he is part of the team that designs our clients’ investment portfolios, prepares individual tax returns, and helps our Advisor Team with financial planning for our clients.

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