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What Does Required Minimum Distribution Mean?

January 09, 2023
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What Does Required Minimum Distribution Mean?

When you reach retirement age, you’ll need to start making withdrawals from your retirement account—and that’s true even if you plan to retire later on. This minimum withdrawal is known as the account’s Required Minimum Distribution, or RMD, and it’s possible to calculate your RMD by hand using the steps and tables we’ve linked below. In what follows, we’ll answer the basic questions surrounding RMDs and help you take the next steps with confidence.

As you read, keep in mind that the details below are provided for informational purposes only. For advice, speak with a qualifying financial professional or contact IntentGen Financial Partners today.

When Must You Start Withdrawing from Your Account?

A person’s RMD may differ depending on whether they’re the account owner or a beneficiary, and on what kind of account they’re managing. However, the rules surrounding Required Minimum Distributions are generally fairly straightforward.

First things first: all of the following account types are subject to the rules surrounding RMDs:

  • Traditional IRAs
  • SEP IRAs
  • SIMPLE IRAs
  • 401(k) plans
  • 403(b) plans
  • 457(b) plans
  • Profit sharing plans
  • Other defined contribution plans
  • Roth IRA beneficiaries

Here’s a closer look at when an RMD is required with these accounts:

  • For most IRAs, including Simple IRAs and SEPs, you need to withdraw the RMD by April 1st of the year after your 72nd birthday.
  • 401k accounts and other profit-sharing structures necessitate that you take the RMD by April 1st in the year after you retire, or after you turn 72—whichever comes first.
  • Subsequently, after the first year, account owners and beneficiaries are required to withdraw the RMD by December 31st.
  • Roth IRAs do not require the account owner to make minimum withdrawals. However, this changes after the account owner’s death: the beneficiary or beneficiaries will be required to take the RMD.

The RMD is included in your taxable income unless your plan expressly allows tax-free qualified distributions.

Although the above guidelines are up-to-date, it’s important to note that those who turned 70½ prior to January 1st, 2020 have been required to take the RMD since April 1st of the following year.

Calculating Your Required Minimum Distribution

We recommend you work with a qualified professional to determine your RMD—especially because the precise rules may change depending on the year in which you retire or turn 72. With that said, the IRS provides several worksheets that you can use to calculate your RMD by hand.

In general, an account’s Required Minimum Distribution is equal to the total value of the retirement account divided by the distribution period in the latest life expectancy tables provided by the IRS. The RMD for each account is calculated separately, so you may need to perform this operation several times.

We’re Here for You

If retirement is on the horizon, remember that IntentGen Financial Partners is here to help you plan for the future and live more intentionally in the present. Take advantage of our online resources to learn about common financial challenges and questions, or get in touch with our firm for personalized advice.