Are you wondering what an RMD is?
Required minimum distributions, or RMDs, are withdrawals mandated by the Internal Revenue Service once you reach a certain age.
What accounts are subject to RMDs?
If you’re an account owner of a traditional IRA or employer-sponsored retirement plan the IRS mandates that you take a required minimum distribution annually by a specified deadline.
If you are the beneficiary of an Inherited IRA there are a variety of RMD requirements, depending upon the type of IRA, the type of beneficiary, and the original owner.
The IRS does not require you to take RMDs on a Roth IRA or Roth 401(k)unless you are a beneficiary.
Required Beginning Date (RBD)
Depending on your birth date, the RBD for Traditional IRAs and employer-sponsored retirement plans is as follows.
If you are born:
Before 1/1/1951, your RMDs have already begun
Between 1/1/1951 and 12/31/1959 your RMDs must start at age 73
After 1/1/1960 your RMDs will begin at age 75
Taxes
RMDs are taxed as ordinary income, with the exception of Inherited Roth IRA accounts.
Penalties
Failure to meet the deadlines for withdrawing RMDs will trigger an IRS penalty of 25%. The penalty is reduced to 10% if corrected in 2 years.
The importance of RMDs in your plan
Understanding RMDs, the rules related to required distributions, and the tax consequences of your withdrawals are essential elements of creating a holistic financial plan.
How RMDs work in the Boldin Planner
IRS rules state that you do not have to take a separate RMD from each IRA. However, if you have more than one defined contribution plan, such as a 401(k) and a 403(b), you must calculate and satisfy your RMDs separately for each plan and withdraw that amount from that plan. This is not the process in the Planner and RMDs may be aggregated from accounts depending upon your withdrawal strategy.