Required Minimum Distribution

What is RMD

Required Minimum Distributions (RMDs) are withdrawals that the IRS requires you to take from tax-deferred accounts (such as IRAs) each year. These withdrawals can be done in a lump sum, or can be taken out gradually over the year, but the RMD must be reached by December 31st of that year. You must begin taking RMDs by April 1st of the year following your 72nd birthday and then annually thereafter. The RMDs are taxed at ordinary income tax rates. See more about RMDs on the IRS website.

How Do I Calculate my Required Minimum Distribution?

You can calculate your RMD each year by factoring in the value of an account on December 31 of the prior year and a “life expectancy factor,” which can be found in Life Expectancy tables issued by the IRS.

What are the Latest Rules for RMD?

Due to the COVID-19 pandemic and as part of the CARES Act, in June of 2020 the IRS announced that taxpayers could unwind any RMDs from their retirement accounts that they had taken in 2020. This suspension provided a significant opportunity for IRA beneficiaries who weren’t in need of this cash flow and enabled them to keep the funds in their IRAs to continue growing tax deferred. Since then, RMDs have been restored for 2021, meaning investors should be aware of the “normal” rules and regulations surrounding them for this year. Investors should keep in mind that the rules are different for Inherited IRAs and Inherited Roth IRAs – RMDs for these accounts must occur over 10 years with all funds distributed by the end of year 10.

RMD Table Worksheet

You can use this RMD table from the IRS to calculate your required withdrawal for your traditional IRA. For more information on RMDs and other tax considerations, visit the IRS website.

Wealthspire Advisors is a registered investment adviser and subsidiary company of NFP Corp.

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