Your guide to Required Minimum Distributions
What is a Required Minimum Distribution?
A Required Minimum Distribution, or RMD, refers to the minimum amount you must withdraw from your tax-qualified annuity or account each year.
Because RMDs are a federal tax law requirement, this information applies to all tax-qualified annuities and tax-qualified accounts, other than Roth IRAs, regardless of product or issuing company.
Why do I have to take an RMD?
Your tax-qualified annuity or tax-qualified accounts is funded with pre-tax money. Federal tax law requires you to begin withdrawing this money and paying applicable taxes during your retirement years.
What is my RMD age?
- Your RMD age is 70½ if you were born before July 1, 1949.
- Your RMD age is 72 if you were born on or after July 1, 1949.
- Your RMD age is 73 if you were born on or after January 1, 1951.
- Your RMD age is 75 if you were born on or after January 1, 1960.
When do I take an RMD?
For a traditional IRA, SEP IRA or SIMPLE IRA, you must take an RMD for each year beginning with the year you reach your RMD age. The RMD for the year you reach RMD age must be paid by April 1 of the following year. The RMD for each subsequent year must be paid by December 31 of that year.
Example 1: Jim has a traditional IRA and turned 72 on August 12, 2022 – therefore, his RMD for 2022 would be due by April 1, 2023. His RMD for 2023 will be due by December 31, 2023.
Example 2: Mary has a traditional IRA and turned 72 on January 4, 2023 - therefore, her RMD age is 73. Her first RMD would be for 2024, and would be due by April 1, 2025. Her RMD for 2025 would be due by December 31, 2025.
For a 403(b) TSA, 401 plan or 457 plan, you must take an RMD for each year beginning with the year you reach your RMD age or the year you sever employment with the employer that holds your retirement plan, whichever is later.
Are there instances when I do not have to take an RMD?
Yes. If you have reached your RMD age and are still working for the employer that holds your 403(b) TSA or 457 plan, then your RMD for the plan will not be due until you retire.
This rule also applies to most 401 plan participants.
What happens if I don’t take my RMD?
If you don’t receive the full amount of your RMD each year, you may be subject to a 50% penalty tax on the amount of the shortfall.
Example: If your RMD for a given year is $2,000 and you withdraw only $1,500, the $500 shortfall may be subject to a 50% penalty tax. If you don’t take any RMD, the full $2,000 may be subject to the 50% penalty tax.
How is my RMD calculated?
Generally, your RMD is calculated by dividing the fair market value of your annuity at the end of the prior year by the factor from the IRS Uniform Lifetime Table. The factor is based on your age as of your birthday that year. If you have started receiving annuity payout benefits, the payment amount is treated as your RMD.
The fair market value of your annuity is generally the account value. It may be greater if your annuity has a death benefit that exceeds the account value or has a living benefit rider.
Are taxes withheld from my RMD payment?
It is not mandatory to withhold federal tax from your RMD payment. Whether or not you choose to have taxes withheld, you are responsible for payment of all applicable federal and state income taxes on the taxable portion of the distribution.
You may also be subject to penalties under the estimated tax rules if your withholding and estimated tax payments, if any, are not adequate.
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