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909 N. Mayfair Road
Suite 200
Wauwatosa, WI 53226

John Coloso

(414) 431-0488


Your RMD Questions Answered

| December 01, 2017

Your 70s represent a time to enjoy the fruits of your labor, but don’t get too comfortable because the IRS has some work for you to do six months after your 70th birthday when they start requiring you to take out your RMDs or Required Minimum Distributions. We often get questions about RMDs from clients, here we've tried to answer some of them for you.

What are required minimum distributions?
A required minimum distribution is the minimum amount you must withdraw from your tax-advantaged retirement account(s) each year, including IRAs (traditional, SEP and SIMPLE), 401(k)s, and 403(b)s when you reach age 70½. (You are not required to take RMDs from Roth IRAs during your lifetime.)

When do you have to begin withdrawing money?
IRS regulations require you to begin withdrawing a minimum amount of money from your retirement account(s) each year by April 1st of the calendar year following the year you turn age 70 ½. After that, RMDs must be taken each subsequent calendar year by December 31st.

Why is this information important to you? 
Calculating the correct RMD amount(s) across one or multiple retirement accounts is complicated and can leave you vulnerable to hefty tax penalties if you miscalculate or fail to take RMDs from one or more qualified plans. 

For example, an IRA owner must calculate the RMD separately for each IRA that he or she owns, but can withdraw the total amount from one or more of the IRAs. Similarly, a 403(b) contract owner must calculate the RMD separately for each 403(b) contract that he or she owns, but can take the total amount from one or more of the 403(b) contracts. However, RMDs required from other types of retirement plans, such as 401(k) and 457(b) plans must be taken separately from each of those plan accounts.

Although retirement plan custodians or plan administrators may calculate your RMD amount, as the account owner you remain responsible for taking the correct amount of RMDs on time every year from your account(s). In calculating RMDs, you will be required to:

  • Determine which accounts or plans qualify for RMDs
  • Assess the beginning date for the first RMD
  • Complete the appropriate IRS worksheet (for each qualified retirement account you own)

Generally, required minimum distributions are calculated for each account by dividing the prior December 31st balance of the IRA or retirement plan account by a life expectancy provided in the IRS tables in Publication 590-B, Distributions from Individual Retirement Arrangements (IRAs). You will then need to choose the life expectancy table based on your situation:

How will this affect your taxes?

  • Your withdrawals will be included in your taxable income except for any part that was taxed before (your basis) or that can be received tax-free (such as qualified distributions from designated Roth accounts).
  • If you fail to withdraw the full amount of the RMD, or fail to withdraw the RMD by the applicable deadline, you’re subject to a stiff penalty. The amount that wasn’t withdrawn is taxed at 50%.

But what if you don’t need the income for current living expenses, or taking the income will result in paying higher taxes or increase your Medicare insurance premiums

If you’re over age 70 ½, you have the option of making a Qualified Charitable Distribution (QCD). Instead of taking an RMD, a QCD permits a direct transfer of up to $100,000 from your IRA to a qualified charity. QCDs automatically satisfy required minimum distributions (RMDs) for the year when the QCD is made, which is a real advantage for charitable-minded IRA owners who don’t need RMDs to live on. But remember, funds that have already been distributed from an IRA to the IRA owner, and are then contributed to charity, don’t qualify as a QCD.

If you have any questions about your RMDs don't hesitate to contact us at 414-431-0488.