Chapter 1 - What is an RMD?

Required Minimum Distribution

Most retirement accounts are funded with pre-tax money that has been growing tax-deferred, meaning the owner has not been taxed on the contributions made to the account or any gains made inside the account. The IRS will only allow this for a certain amount of time, and then the owner of the account must begin to make required minimum distributions.

Annual Withdrawals from Retirement Accounts

The IRS defines required minimum distribution as the minimum amount you must withdraw from your account each year. Some examples of accounts that have RMD requirements are 401(k)s, various IRA’s, SEPs and Profit Sharing Plans. These withdrawals are typically subject to taxes at your current tax bracket, the rest you can spend or reinvest.

One important reason to take a timely RMD is to avoid excise tax from the IRS. This tax can be as high as 50% of the amount of the required minimum distribution.

Distributions Must be Made On Time

The government regulates that an RMD must be taken by April 1, the year after you turn 70-½. Then the RMD is due each consecutive year thereafter, and the percentage that you must withdraw from your account changes each year. If you inherit an account that has RMDs, you must also follow the rules which will vary depending on the type of account, even if you are younger than 70-½.

The Math can be Confusing

The calculations for Required Minimum Distributions can be confusing, and there are several strategies specific to RMDs. It is the responsibility of the retirement account owner to make sure the RMDs are done properly and are taken on-time. As advisors, we help our clients manage their RMDs, and assist them in finding a suitable strategy for retirement. 

Explore this section of our website to learn more. We cover several topics below. For the most current RMD rules and regulations, you can visit the IRS website, or you may find it easier to contact us directly with your questions.