Financial Advice Blog

Unlocking the Mystery of Required Minimum Distributions

by Community Manager  |  Retired, Army  |  San Antonio, TX  |  ‎12-09-2013 06:56 AM

The year is quickly winding down. For millions of Americans that means the window for taking annual Required Minimum Distributions (RMDs) from IRAs and other retirement plans is closing. And if the conversations I have on a regular basis are any indication, the rules surrounding minimum distributions still remain a mystery to many despite the congressional simplification that took place back in 2002.


Retirement plans such as 401(k)s, 403(b)s, the Thrift Savings Plan and IRAs are designed to encourage folks to save for retirement by providing a tax incentive in the form of income-reducing contributions and/or tax-sheltered accumulation.


In other words, you’re able to hold the IRS at bay and build your nest egg by participating in these types of plans.  But, the relief doesn’t last forever. The IRS is intent on getting its share, and the RMD rules ensure this will be the case by requiring you to begin removing money from these plans — and paying the appropriate taxes — beginning at age 70½.


Here are some key points you need to know as you prepare for the IRS onslaught:


Withdrawals are required at 70 ½…sort of.  You must take your first distribution in the year you turn 70 ½. However, the first distribution, and only the first distribution, can be delayed up until April 1st of the year after you turn 70 ½.


For example, say you turn 70 on Nov. 15, 2013, and will be 70 ½ on May 15, 2014. Your first distribution is required to be taken by Dec. 31, 2014. So, you could take it at any point in 2014 or delay it until April 1, 2015. If you choose the latter, you will have to take two distributions that year since all distributions after the first one must be taken before Dec. 31.  


The minimum is just that. While the IRS  provides a robust set of rules and calculations regarding the minimum amount you must withdraw, you are certainly entitled to take as much as you want from your retirement savings. Heck, have you been watching the headlines? The government would be quite happy to see you pay more tax!


The calculation is simple. IRS Publication 590 provides a simple table (Table III, Uniform Lifetime) to enable you to determine how much you must withdraw. This table works for anyone except someone who is married to a spouse who is more than 10 years younger and is the sole beneficiary of the plan. If that’s the case, there’s a separate table.


Simply take the prior year Dec. 31st value of your retirement account and divide it by the IRS provided factor to determine how much must be withdrawn.


Too little is painful. I noted earlier that you can take as much as you want from your IRA plans, but don’t take too little.  The IRS levies a 50% tax on any required amount not withdrawn. Ouch!


Multiple plans require multiple calculations. You must calculate your RMD from each IRA separately, but you can withdraw the RMD from one, or more than one, of the IRAs. For example, if you have three IRAs you could calculate the RMD for each account, but withdraw the total required amount from only one of the three IRAs. Also, remember that money withdrawn from an employer plan does not satisfy the RMD for your IRAs. Generally, RMDs from employer plans must be calculated and taken separately from each plan.


Can’t do it for your spouse. In many cases, the IRS considers things like income, deductions, and exemptions to be a team game for married couples. Not so with RMDs. Required Distributions must come from the account owner’s funds.


Hopefully, that discussion helps you better understand some of the nuances surrounding RMDs. It’s by no means an all-inclusive guide, but it should be enough to get you started as you head out to meet with your tax advisor.


Enjoy the holidays!



Additional Disclosures


  • USAA or its affiliates do not provide tax advice.  Taxpayers should seek advice based upon their own particular circumstances from an independent tax advisor.




by gist4fun ‎02-15-2014 02:18 PM

Useful article .. is this one.

It would be even more useful if the author had included a web link to an official online source of the table in IRS Pub 590 to which he refers.

In my case, an example of the arithmetic of the long division would also be helpful, but the rest of your readers can likely do without that.

by Community Manager ‎02-17-2014 06:42 AM

Great catch! Here's the link to Table III of Publication 590

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