Required Minimum Distributions (RMDs) are the minimum yearly withdrawals that must be taken from certain retirement accounts starting in the year you turn 70 ½. These accounts include:
The RMD for each year is going to be a substantially equal distribution over the life of the owner of the account. The RMD is calculated by dividing the retirement account balance at the end of the previous year by the applicable distribution period or life expectancy of the investor. While there is a minimum distribution that must be taken to avoid the 50% penalty, there is no maximum withdrawal amount.
In general, you have until April 1 of the year following the calendar year in which you reach age 70 ½ to take your first RMD. After that, the deadline for taking RMDs is December 31.
Because Roth IRA contributions are made with money on which taxes have been paid, there is no requirement to take RMDs on these accounts during the lifetime of the original investor. However, after the death of the original owner, the beneficiaries of Roth IRAs are subject to Minimum Distribution rules, just as they are with the other retirement accounts. Beneficiaries of these kinds of IRAs also face the 50% penalty if the RMD is not made on time.
Just as there are penalties for failing to take RMDs, there are penalties for taking early withdrawals from your IRA. If you take a withdrawal from an IRA prior to age 59 ½, an additional 10% penalty is assessed. Simple IRAs have a 25% penalty for early withdrawal if it is made within the first two years of participation in the Simple IRA.
There are exceptions to penalties for early withdrawals:
If you have additional questions about withdrawals from IRAs or any other financial concern, please contact us. We are more than happy to sit down with you to review your situation to ensure you’re making the best decision with your finances.