The IRS recently issued a statement reminding retirees that required minimum distributions from retirement plans and IRAs should be taken by Dec. 31.

Generally, required minimum distributions (RMDs) are minimum amounts that must be withdrawn annually from most retirement plan accounts and IRAs once the account owner turns 72 (there are exceptions to the required distribution rules).

The Setting Every Community up for Retirement Enhancement (SECURE) Act of 2019 raised the minimum RMD age to 72 from 70 ½ beginning in 2020.  Individuals who turn 72 in 2021 must take their first RMD by April 1, 2022.

The required distribution rules apply to:

  • Owners of traditional Individual Retirement Arrangements (IRAs)
  • Owners of traditional Simplified Employee Pension (SEP) IRAs
  • Owners of Savings Incentive Match Plans for Employees (SIMPLE) IRAs
  • Participants in various workplace retirement plans, including 401(k), Roth 401(k), 403(b) and 457(b) plans

Roth IRAs do not require distributions while the original owner is alive.

An RMD is based on the account owner’s life expectancy and their account balance. For most IRA owners, life expectancy used to calculate the RMD is based on Uniform Lifetime Table III published by the IRS.

The RMD is calculated separately for each IRA; however, an individual with multiple IRAs may choose to withdraw the entire amount from one IRA. In contrast, RMDs from workplace retirement plans must be taken separately from each plan.

Not taking a required distribution, or not withdrawing enough, could mean a 50% excise tax on the amount not distributed.

Beneficiaries who inherit retirement accounts also have distribution requirements, which are dependent upon the age of the deceased account owner, the timing of their death and the relationship of the beneficiary to the deceased individual.

For assistance in understanding your specific distribution rules and determining the distributions amount needed to satisfy RMD rules, contact your Somerset advisor at 317.472.2200 or .