As per IRS policies, you can't postpone withdrawals from your retirement savings to get a lifetime advantage on taxes. After you turn 70 years old, you have to start taking payments from certain accounts each year. This mandatory withdrawal is called a Required Minimum Distribution, or RMD. The calculator on this page can help you figure out exactly what amount you should be withdrawing and is designed with IRS guidelines, so you can learn more about taking the correct payments. Sine your RMD changes based on your age, you can find a full summary of your RMDs in the integrated reports. But, if you want to calculate your RMD for the current year only,
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What are required minimum distributions?
Required minimum distributions, or RMDs, are the mandatory payments you must take from your tax-deferred retirement plan. Based on the IRS guidelines, you have to withdraw these minimum payments from your account each year. You could always take out more than the minimum, though. Since the earnings are considered regular income, the funds will be
taxed at your marginal tax rate
Which retirement plans require RMDs?
The IRS requires that you take funds from tax-privileged plans once you reach a certain age. That means most retirement programs are subject to RMDs. Failing to take your required payments can result in steep penalties on your earnings. This helps to ensure the government gets tax revenue from plans that defer taxes. If you were to keep your funds in the account indefinitely, the government would be left without a major source of tax income.
In light of this, RMDs are mandatory for
, and Keogh plans. It also pertains to
. That means you have to take payments from traditional, rollover, inherited, SEP and simple IRAs. However, there is an exception relating
to Roth IRAs
. Since the funds in a Roth IRA are already taxed, it is not required to take regular payments from that account.
When do you have to start taking payments?
2018 will be the first year many baby boomers will have to take RMDs from their retirement plans. The legislation requires anyone reaching the age 70½ to begin taking payments. Therefore, when you take your first payment depends on when your birthday lands in the calendar year and the type of account.
• For IRA and 403(b) holders
If your birthday is
before June 30th, 2018
, you will be 70 ½ before the end of the year. That means you would have to make your first withdrawal before you file taxes in April of 2019.
If your birthday is on or
after July 1, 2018
, you will turn 70 ½ the following year. In that case, 2019 would be the first year you would have to take a payment, so the withdrawal would have to be before you file your taxes in April of the following year (2020).
Every payment after that has to be taken out before the end of the year. That means if you waited to take your first RMD right before you filed taxes, you would have to make another withdrawal in the same year.
If you have more then one IRA, you can combine your RMDs. Once you figure out the payments you have to take; you can add it together and take it from one account or a combination of your IRAs. The same principle applies to 403(b) plans. If you have several 403(b)s, you can take your total RMD from one account. You can’t however, combine your RMDs between an IRA and 403(b).
• For 401(k), 457(b), and Keogh plans
The other qualified retirement accounts can have slight variations in when you should take your payments. The plan documents will guide you on when an RMD must be made. The only exception is for account holders that own a percentage of the business. Plan participants that own 5% (or more) of the company sponsoring the plan must follow the same guidelines as IRA holders.
Each employer-sponsored plan that you have will require mandatory distributions. That means, if you have two 401(k)s and a 403(b) plan, you have to take three separate distributions. One payment should be withdrawn from each of the 401(k)s, and another payment from the 403(b).
How is the RMD amount calculated?
Your distributions are calculated by using your age, account balance, and an IRS mortality factor. Your mortality factor can be found in one of three
. Each sheet is designed for different marital circumstances.
This mortality table is designed for individuals of all ages. If you are not married, this grid will provide the factor you need to calculate your withdrawals.
Made for spouses that are within ten years of age to each other. If you are married and your partner is not more or less then ten years older then you, this table will be used to figure out your RMDs.
Created for spouses separated by ten years or more. If your significant other is more then ten years older or younger then you, this worksheet will help you work out your payments.
Once you have identified the table applicable to your situation, you can calculate your payments. To figure out your RMDs, divide your account balance (from the end of the previous year) by your mortality factor. Each table provides a factor according to your current age. Therefore, you will have to re-calculate your RMD each year.
If any of this sounds confusing, don’t worry. The RMD calculator has these tables built in so that you can calculate all your withdrawals easily.
What happens if you don’t take your RMDs?
It is mandatory to take payments, even if you don’t need the money. If you don’t make your withdrawal or take out too little, there are substantial consequences. Not taking a distribution can result in a 50% penalty on the funds that should have been withdrawn.
For employer-sponsored plans, your employer should determine your RMD and make sure it is distributed. If you don’t need the funds immediately, you could
always re-invest the money
In the case of an IRA or 403(b), your financial administrator should notify you when you are due for an RMD. However, you will be responsible for calculating the exact amount and making the withdrawal.
Using the calculator
The calculator is very simple to use. It is designed to help you work out your required minimum distribution. You just need to include a few details about yourself and your retirement account. Let’s review this together.
: Begin by adding your account balance to the first line. Use your account balance from the end of the previous year for accurate calculations. If you have multiple retirement accounts, you should assess each account separately. You can use the arrow feature or your keyboard to make this input easier.
: Include your age for the year you are calculating your RMD on the second line of the calculator.
: The next two lines provide an optional selection to help work out your payments. If your birthday is later then June 30th, please select the first box. If you are married and your spouse is your sole beneficiary, check off the second box. Your marital status will guide the system in which worksheet applies to your situation.
: If you are married and your spouse is your beneficiary, add their age to the next line of the calculator. If you did not check the second box, this input would be disabled.
: Finally, include the rate of return on your retirement account.
Once you have completed the questionnaire, you can view your results.
There is a smart prompt beneath the inputs of your RMD amount. For more detailed information on how your RMD impacts your account, please view the integrated reports.
There are three reports you can view to get a better understanding of your mandatory distributions. Just select the tab to see the information.
Account balance by age
. The first report is a chart of your retirement account balance over time. Here you can see a snapshot of how your balance looks after each of your distributions have been withdrawn. You can hold your mouse over any point on the line graph to get an exact reading of the funds left in the account at a certain age.
Required minimum distributions
. The next tab will highlight how your distributions will change over time. As you get older, you will be required to take more significant distributions.
Account balances and distributions
. The final report will provide a detailed summary of all the account transactions. Here you can view the exact dollar figure of all your distributions, along with the ending balance in the account. If you pay close attention, you can see which IRS worksheet was used to calculate your RMD. It is labelled in the first column.
With this information, you can adequately structure your RMDs to avoid any penalties.
If you found this page useful, you can promote us on social media by using the share feature. You can also bookmark this page and save it to the home screen of your smartphone. You can return regularly to make sure you are taking out the right amount of money. If you have been taking more then the minimum distribution, it’s a great idea to re-do your calculations each year.