Required Minimum Distributions From IRAs
- Required minimum distributions, or RMDs, are required beginning in the year that you reach age 70 1/2. For the first year, you can wait until April 1 of the following year to take the distribution. However, in future years the distribution must be taken by Dec. 31 to satisfy the requirement. These distributions must be included in your taxable income for the year in which they are taken.
- To determine the size of your required minimum distribution, you must first determine whether you use the IRS's uniform life expectancy table or the joint life and last survivor expectancy table to figure your life expectancy. If your spouse is more than 10 years younger than you, you can use the joint life and last survivor expectancy chart. Everyone else uses the uniform life expectancy table. Once you have your life expectancy, divide the value of your IRA as of the end of the previous year by your life expectancy to figure your required minimum distribution.
- When you must take a required minimum distribution, in order for it to satisfy your required amount for the year, it must not be rolled over. For example, you may be tempted to roll over your required distribution from a traditional IRA to another traditional IRA account or a Roth IRA. While you can still be permitted roll over money during years that you must take a required minimum distribution, you cannot use that money to satisfy your required minimum distribution requirements.
- Should you fail to take the required minimum distribution from your IRA as scheduled, the IRS imposes a 50 percent penalty. For example, if your required minimum distribution is $12,000 and you fail to take the distribution, you must pay a $6,000 penalty at the time you file your taxes. If you took out $8,000 instead of the required amount, the penalty would be $2,000.