December 24, 2021 — The clock is running out for people who must take their yearly Required Minimum Distributions (RMDs) from their 401(k) or IRA plans. An RMD is the minimum amount you must withdraw from your account each year after you reach a certain age. December 31 is the deadline.
You generally have to start taking withdrawals from your IRA, SEP IRA, SIMPLE IRA, or retirement plan account when you reach age 72 (70 ½ if you reach 70 ½ before January 1, 2020). The deadline is April 1 of the year following the calendar year in which you reach age 72, if you were born after Jun 30, 1949. Thereafter the deadline is Dec. 31.
Calculating your RMD
There are various IRS tables that tell you how much your RMD has to be (you can take out more if you want). The amount you take out is taxable in full. As an example, if you are 72 years of age the factor is 25.6. You divide your IRA/401(k) balance by the distribution period in the IRS Uniform Lifetime table to determine the RMD. So if your balance was $1 million, dividing by 25.6 would yield an RMD of $39,062.50. Each year as you age the factor increases, until at age 115 or older it is 1.9. The Uniform Lifetime table distribution periods are being revised to reflect current life expectancies, with new figures expected in 2022. Roth IRAs do not require withdrawals until after the death of the owner.
There is a far easier way to know your RMD, however. Your mutual fund company or broker will normally tell you how much you need to take out each year, as well as send out reminders to do so. If your IRAs are with more than one company it is up to you to make sure your total RMD reflects balances in all of your accounts. As a reminder, if you send money directly to a qualified charity that amount does not count as income (but you cannot deduct it).
If you haven’t taken yours yet – hurry!
The penalties for not taking RMDs are serious – 50% of the required distribution. It can take time to set up a withdrawal, so get on it today!