If you are approaching retirement age, you should begin to consider when to take distributions from your qualified plans and IRAs. In addition to the IRS’s restrictions on when you can start taking money from your retirement accounts, there are additional requirements concerning distributions you must take. The Internal Revenue Code requires you to withdraw a certain amount each year so that it can tax a certain minimum amount each year.
Why am I required to take distributions?
The distribution requirements were established to prevent you from accumulating funds tax free indefinitely. In the case of a qualified plan in which you participate, you are required to begin taking required minimum distributions (RMDs) starting April 1 of the year following the year in which you reach RMD age in the chart below or retire, whichever is later.
In the case of your IRAs, you must begin distributions starting April 1 of the year following the year in which you reach the RMD age in the chart below, regardless of whether you have retired. If you own more than 5% of the business sponsoring the plan, then you must begin receiving distributions by April 1 of the year after the calendar year in which you reach the RMD age, even if you have not retired.
| Birthdate | RMD Age |
| June 30, 1949 and earlier | 70½ |
| July 1, 1949 – December 31, 1950 | 72 |
| January 1, 1951 – December 31, 1959 | 73 |
| January 1, 1960 and after | 75 |
You are not required to take distributions from Roth IRAs or designated Roth accounts in qualified plans during your lifetime.
How much must I take out?
The minimum amount that must be distributed from your retirement accounts depends on your life expectancy, or the joint life expectancy of you and your spouse if your spouse is more than 10 years younger. If the required amounts aren’t distributed, a 25-percent excise tax is imposed on the amount that should have been distributed but wasn’t. The tax may be reduced to 10 percent if you correct the error during a limited correction period.
The required minimum distribution for any year is the account balance as of the end of the immediately preceding calendar year divided by a distribution period from the IRS’s “Uniform Lifetime Table.” A separate table is used if the sole beneficiary is the owner’s spouse who is ten or more years younger than the owner.
For each year after your required beginning date, you must withdraw your RMD by December 31.
Estate Planning
At the same time that you are arranging your post-retirement finances, you can also incorporate some estate planning by reviewing the beneficiaries to your retirement accounts. There is a distinction between an “eligible designated beneficiary” and other beneficiaries who inherit an account or IRA.
An eligible designated beneficiary includes a surviving spouse, a disabled individual, a chronically ill individual, a minor child, or an individual who is not more than 10 years younger than the account owner. Certain trusts created for the exclusive benefit of disabled or chronically ill beneficiaries are included. These eligible designated beneficiaries may take their distributions over the beneficiary’s life expectancy. However, minor children must still take remaining distributions within 10 years of reaching age 18. Additionally, a surviving spouse beneficiary my delay commencement of distributions until the later of the end of the year that the employee or IRA owner would have attained their RMD age, or the surviving spouse’s required beginning date.
Designated beneficiaries, who are not an eligible designated beneficiary, must withdraw the entire account over a 10 year period following the year of the employee or IRA owner’s post-2019 death. Non-designated beneficiaries must withdraw the entire account within 5 years of the employee or IRA owner’s death if distributions have not begun prior to death.
Working within the distribution rules, you must make decisions about your post-retirement finances and planning your estate. If you want to know more about the rules and how they will work best in your situation, please don’t hesitate to contact our team.
