Today we would like to talk with you about Required Minimum Distributions or RMDs. They are something that all of us that have retirement accounts will eventually face. 

The RMD mandates that you begin withdrawing a minimum amount from your retirement accounts annually once you reach a certain age. Their primary purpose is to ensure that individuals withdraw their retirement savings during their lifetime rather than allowing these funds to grow tax-deferred indefinitely.

Roth IRAs and 401ks do not have any required minimum distribution and can continue to grow tax-free your entire life. This can make contributing to a Roth or converting to one even more attractive. 

RMDs start at different ages depending on when you were born. If you were born in 1950 or earlier, you needed to start taking your RMDs by April 1st the year after you turned age 72. If you were born between 1951 and 1959, you need to begin distributions by April 1st the year after your 73rd birthday. Finally, if you were born in 1960 or after, your RMDs will start by April 1st the year after you turn 75. 

Your RMD is calculated by dividing your retirement account balances on December 31st of the previous year by the IRS life expectancy factor. The RMD for a $1 Million IRA looks like this at each age. 

As you can see, the percentage that you must withdraw from your retirement accounts increases as you grow older. 

RMDs are calculated differently for inherited IRAs that depend on when the account was inherited and the relationship of the person. A spouse can rollover the funds to their own IRA and then follow their regular RMD schedule, while a non-spouse beneficiary such as children or grandchildren, must withdraw the funds within 10 years of the date the original owner passed away.

You can take your RMD once per year or as a series of withdrawals throughout the year. However, if you do not take the full required amount during the calendar year, there is an IRS penalty of 25% plus any tax owed on that amount. 

Finally, most importantly, RMDs are something that should be planned for in advance in order to minimize the amount they will be taxed during your lifetime or even your beneficiaries’ lifetimes. 

At Presilium, we look at possible Roth Conversions, Qualified Charitable Distributions, and strategic advanced withdrawals to minimize their long-term tax impact on your financial plan. 

Thank you and we look forward to talking with you again soon. 

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