Personal Finance

Seven Things to Know About Required Minimum Distributions

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by Alli Thomas

Dec 11, 2018

There are only a few more weeks to go before the ball drops on 2019. If you’re over 70 ½ and you haven’t taken your annual Required Minimum Distribution (RMD) ­– the minimum amount you must withdraw – from your pretax retirement savings accounts yet, now is the time to do it. Not taking your RMD in time could subject you to significant tax penalties.

 

If you don’t have to take required minimum distributions just yet, here are seven things to keep in mind while working on your retirement plan:

 

  1. If you own a traditional IRA, SEP IRA, SIMPLE IRA, 401(k), 403(b), or 457(b), you have to take your first required minimum distribution by April 1 of the year following the year in which you turn 70 ½. In all subsequent years, you must take it by December 31.
  2. If you own multiple pretax accounts, you must determine the required minimum distribution for each account. However, you may withdraw the total amount from just one of your accounts to satisfy the requirement.
  3. You may calculate your required minimum distribution by visiting the IRS website. You can also contact the trustee or record-keeper of your account and request information about the amount of your RMD.
  4. Planning ahead for how you’ll take your RMD is important because it can have a significant impact on your tax bill for the year. If you aren’t mindful, your required minimum distribution could knock you into a higher tax bracket and affect the amount of taxes you’ll pay on Social Security income.
  5. If you’re over 70 ½ and still working, your employer’s 401(k) plan may allow you to defer your RMD until after you retire (or if you shift to a part-time schedule), as long as you are not a 5% owner of the company.
  6. RMDs are not eligible for rollover and they must be processed before other distributions. If you’re thinking about rolling over your 401(k) to an IRA while subject to RMD requirements, you must first take the RMD before your remaining 401(k) balance can be rolled over.
  7. If you fail to take your RMD by the deadline, you will pay a 50% excise tax on the amount you should have withdrawn. If you don’t take your RMD from your 401(k) plan, you may get a check in the mail anyway. Employer-sponsored retirement plans may force you to take the RMD even if you don’t request one. If an employer fails to distribute a participant’s RMD, the plan may face potential disqualification, which would have negative consequences for all plan participants.

 

Looking for some guidance on how to best plan your RMD to minimize your tax bill and maximize your savings? We can help. Request a complimentary conversation with a member of our advisor network today.

Alli Thomas

Alli Thomas has worked in the financial services industry for nearly 20 years, with a focus on retirement-related investing. She began her career as a FINRA-licensed participant-services call-center associate at Vanguard, and then moved to Principal Financial Group, where she worked closely with employers, assisting with retirement plan set-up and design, selecting appropriate plan investment offerings, and maximizing employee participation through targeted education campaigns and enrollment meetings. Alli has also worked as a qualified 401(k) administrator and registered investment advisor for several small investment firms. She now writes about all things investment- and finance-related, leveraging her extensive experience and passion for retirement planning to help investors make well-informed financial decisions.

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One Response

  1. Teresa Benitez says:

    What is the earliest age to get the RMD and how to minimize the tax bill and maximize my savings from your retirenment if I work for the school district? Do they offer free conversations, but in Spanish?