The ABCs of RMDs: Cracking the Code on Required Minimum Distributions

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As you gear up for your year end planning, let me ask you this-did you or someone you know turn 70 years old this year? If you did or they did, you know it is the year you hear the buzz of the words "Required Minimum Distributions" aka RMDs

What are RMDs? 

The Internal Revenue Service (IRS) defines it as "Required Minimum Distributions generally are minimum amounts that a retirement plan account owner must withdraw annually starting with the year that he or she reaches 70 ½ years of age or, if later, the year in which he or she retires. However, if the retirement plan account is an IRA or the account owner is a 5% owner of the business sponsoring the retirement plan, the RMDs must begin once the account holder is age 70 ½, regardless of whether he or she is retired."

When Do They Have To Be Taken?

You must take your FIRST required minimum distribution for the year in which you turn age 70½. However, the first payment can be delayed until April 1 of the year following the year in which you turn 70½. For all subsequent years, including the year in which you were paid the first RMD by April 1, you must take the RMD by December 31 of the year.

Let us break that down for you:

For year 2013, if you were born on or before June of the year 1942, you are eligible to take an RMD. You have to take RMDs from:
  • All employer sponsored retirement plans, including profit-sharing plans,
  • 401(k) plans, 403(b) plans, and 457(b) plans. 
  • Traditional IRAs and IRA-based plans such as SEPs, SARSEPs, and SIMPLE IRAs.
  • Roth 401(k) accounts if the Roth 401(k) is inherited. 

How Do We Calculate RMDs?

An RMD is calculated for each account by dividing the prior December 31 balance of that IRA or retirement plan account by a life expectancy factor. This factor is published by the IRS in Tables in Publication 590, Individual Retirement Arrangements (IRAs)
You would use the:
  • Joint and Last Survivor Table if your sole beneficiary of the account is your spouse and your spouse is more than 10 years younger than you;
  • Uniform Lifetime Table if your spouse is not your sole beneficiary or your spouse is NOT more than 10 years younger; and
  • Single Life Expectancy Table if you are a beneficiary of an account.
You can also use an online RMD Calculator such as this one from Charles Schwab or talk to your tax professional. 

How to Take an RMD? And "dit and dat": 
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  • The IRA Custodian or the plan Administrator may calculate the RMD to be taken by you, but you are ultimately responsible for taking the correct RMD based on your total investment in all plans. 
  • You can withdraw more than the RMD. 
  • If you are an IRA or a 403(b) owner: You must calculate the RMD separately for each IRA that you own, but you can withdraw the total amount from one or more of the IRAs.
  • If you are the owner of 401(k) or 457(b) Plans: the RMDs have to be taken separately from each of those plan accounts. 
  • You cannot roll over the RMD into another tax deferred account.
  • You will be taxed on this distribution at your tax rate. To the extent the RMD is a return on basis, it is tax-free.  
  • You cannot apply the excess distribution of one year to the next. 

Penalties and Other IRS Favorites: 

  1. If you fail to withdraw an RMD; fail to withdraw the full amount of the RMD; or fail to withdraw the RMD by the applicable deadline; the amount not withdrawn is taxed at 50%. 
  2. You should then file Form 5329 {Additional Taxes on Qualified Plans (Including IRAs) and Other Tax-Favored Accounts}, with your federal tax return for the year in which the full amount of the RMD was not taken.

If the magic number seven-zero is fast approaching, you need to sit down with your tax professional and/ or your financial planner and talk about your options. If you are going to to end up paying a lot of taxes on your RMDs, maybe Roth conversions are an option for you. Planning, planning, planning is the answer to the cracking the code of the RMDs. 

Bibliography:; Pub 590;

As always, read my disclaimer here. Please consult a qualified tax professional for your unique tax needs. More of my contact information is on my website,



  1. I stopped having birthdays when I was 39. But I'll have to start up again after I'm 70. This is not good news.

    1. Surely one more reason to start celebrating birthdays after 70!

  2. A good thing for the tax professionals who I sent to take the Enrolled Agent exam course at is that they discovered how the RMD rules apply to people who inherit IRAs. We get a lot of those in my area.

    1. Thanks Brian. That is a follow-up to this post I am working on right now.


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