A Required Minimum Distribution (RMD) is the amount of money required to be withdrawn from your retirement accounts (not including ROTH IRAs) once you reach age 72. These mandatory distributions were suspended in 2020 under the CARES Act but are back for 2021. Let’s review the basic rules and help you avoid any penalties associated with a missed RMD.
When is the RMD due?
First, if you are still working, a retirement plan participant over the age of 72 must check with their employer to see if they are required to take a distribution. A plan may or may not require a participant to begin receiving distributions.
For individuals getting ready to take their first RMD, the IRS allows for two options. First, an individual can take one RMD by April 1st of the year following the 72nd birthday and take a second RMD by December 31st of the same year. Secondly, an individual can take their first RMD in the year they reach age 72. For each year after the initial required distribution, the participant must withdraw their RMD by December 31.
Distributions from Multiple Plans
If the participant has more than one retirement plan, they must take an RMD from each plan. However, if they have more than one IRA, they can add the RMDs and take the combined distribution amount from any one or more IRAs.
If the participant does not take a distribution or if they withdraw less than the required amount, they may have to pay a penalty equal to 50% of the amount not taken. Participants can take more than the required amount, but the extra payment will not offset future RMDs.
It is critical you understand how RMDs work or the penalty is hefty! We are here to help if you have any questions.
Information in this material is for general information only and not intended as investment, tax or legal advice. Please consult the appropriate professionals for specific information regarding your individual situation prior to making any financial decision.
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