Required Minimum Distribution

For those near or in retirement, dates become increasingly important.  Not complying with certain IRS rules can lead to hefty penalties.  The Required Minimum Distribution (RMD) is the amount of money that one is required to begin withdrawing from their retirement accounts beginning in the year following the year they turn 70 1/2.  The 70 1/2 thing is what confuses most people.  If one does not withdraw the RMD from their retirement accounts each year, then a hefty penalty of 50% is applied to that money.

You must begin taking your RMD by what is called your Required Beginning Date ( RBD ), which is generally April 1 of the year following the year you turn age 70 1/2.  So, in my case, I will turn 70 on October 2, 2036.  This means I will turn 70 1/2 on April 2, 2037.  Which means, my "first distribution year" is considered to be 2037, but I would not be required to withdraw money until April 1, 2038 which is actually my Required Beginning Date ( RBD ).  My situation is a bit unique since my 70 1/2 birthday falls on almost the precise April 1 date.  I will need to gather more information regarding exactly how that 70 1/2 birthday is determined so I will know if it's just prior to April 1 or just after that date.

So, what types of accounts must you begin withdrawing money from ?  Basically, any account that has been exempt from annual taxes each year - this would include money in 401K plans, Tradional IRA, Roth IRA, Simple IRA and SEP IRAs.  Consult with a tax expert to get a full list of accounts that money will need to be withdrawn from.

The NewRMD.com RMD Calculator is a handy tool for determining your RMD.  The logic behind the calculator is based on the 2002 RMD Tax Law.

One other important retirement date is the year when you turn 59 1/2.  This is when you can begin withdrawing money from your retirement accounts.  You are not required to withdraw money at this time.  It is simply the age at which you can withdraw money from these accounts without incurring a penalty.