FACTS

Retirement account holders who reach age 70 ½ are required to start taking an RMD. According to the IRS, RMD rules apply to “all employer-sponsored retirement plans, including: profit-sharing plans, 401k plans, 403(b) plans, and 457(b) plans…traditional IRAs and IRA-based plans such as SEP IRAs, SARSEPs and Simple IRAs.”

RMDs are calculated separately for each IRA but then may be aggregated and the total amount taken from one IRA. You may not take the RMD for an IRA from a company plan or a Roth IRA. You can aggregate IRAs that “you own”. You can separately aggregate IRAs inherited from the same person.

The IRA custodian will be reporting to the IRS on Form 5498 that you are required to take an RMD.

The RMD is calculated by dividing the December 31 prior year IRA balance by a life expectancy factor.

If the RMD is not taken by the December 31 deadline (April 1 for the first RMD), there is a 50% penalty on the amount of the shortfall.

RMDs can be given to charity RMDs can be given to charity. The qualified charitable distribution (QCD) expired at the end of 2011 so a direct charitable distribution is no longer allowed. You can, however, still itemize charitable contributions to qualified charities. It will still be considered taxable income, but you can lower your overall taxable income by itemizing it and lowering it by the same amount of your charitable donation.

FICTION

RMDs can be delayed if you are still working RMDs can be delayed if you are still working. RMDs must be taken from any IRA once you turn 701/2. If you have a 401(k) with a current employer and you are still working for that employer, you can delay the RMD for as long as you are working for that employer. This exception does not apply for former employer 401(k) accounts even if you are otherwise employed.

RMDs are not required from a Roth 401(k) RMDs are not required from a Roth 401(k). Actually, Roth 401(k) owners are required to take an RMD. Keep in mind, you could roll your Roth 401(k) to a Roth IRA and thereby you would avoid having to take an RMD but if you keep the account as a Roth 401(k) then you will be required to take an RMD starting at 70 ½. The distributions will not be subject to tax but they will start removing funds from the tax-free account.

RMDs must be taken in cash RMDs must be taken in cash. RMDs may be satisfied by taking a distribution of assets in kind by transferring to a non-qualified account.

RMDs can be rolled over into another retirement account RMDs can be rolled over into another retirement account. Once your RMD is distributed, you cannot put it into another tax sheltered retirement account.

You can take extra distributions and apply it to the next year You can take extra distributions and apply it to the next year. If you happen to take out more than the required minimum distribution, you will simply treat it as taxable income. You cannot apply it towards the following year’s RMD.

Questions?