Required Minimum Distributions (RMD)

April 11, 2024


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Required Minimum Distributions (RMD)

Today, we’re going to talk about  Required Minimum Distributions -- or RMDs. If you have a tax-deferred retirement account, like a Traditional IRA or employer 401(k), I’m going to answer some of the most common questions we get.


The great thing about tax-deferred accounts is that you got a tax break when you put money in, and the growth and income generated in that account over years, and maybe even decades, wasn’t taxed. But, at some point, the IRS requires you to start taking money out and paying tax on it.


These guidelines were updated at the end of 2022 and an easy way to remember is this.  If you were born before 1951, you’re over 73 and should already be taking RMD. If you were born between 1951 and 1959, your RMD starts the year you turn 73. And if you were born in the 60s or later, RMDs start the year you turn 75. From that point on, you have until December 31st to take your RMD each year, although you do have a few extra months in your first year.


To figure out your RMD, you need two numbers. The first is the balance of your tax-deferred account on December 31st of the previous year. The second is a number the IRS provides on a life expectancy table on their website -- You divide one by the other and that’s how much you need to take out of your account that year. And, by the way, it doesn’t matter whether you take the RMD in a lump sum or in chunks throughout the year. The IRS doesn’t care as long as you take all of it by the end of the year.


If you miss the deadline for any reason, the IRS charges a 25% excise tax on the amount you missed…Believe it or not, this is the kinder, gentler IRS penalty!  It was 50% up until 2023 … and they’ll drop it to 10% if you correct the problem within two years. So it’s worth paying attention to your start date and deadline.


These distributions are generally taxed at your Federal and state income tax rates, not at capital gains rates. Keep in mind, these are the basic guidelines for RMDs. There are other rules for different situations, like if you made non-deductible IRA contributions or if you inherited an IRA. So, let us know what YOUR questions are about RMDs and we’d be happy to help.



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