If you haven't started taking distributions from your traditional IRA by the year you reach 70 1/2, it's time to start. If you already have made some IRA withdrawals, you must make sure your annual distributions meet the level for your required minimum distribution. Plus, you also need to meet RMD requirements for any account in an employer-sponsored workplace retirement plan, such as a 401(k), unless you're still working and adding to it. You can exceed your RMD in any year, but if you don't take the minimum IRA withdrawal, the IRS will add a 50 percent penalty – plus interest – to your tax liability.
Finding Your Required Minimum Distribution
The IRS considers you 70 1/2 six months after your 70th birthday. If your 70th birthday is June 30, that means you hit 70 1/2 on Dec. 30, and you must take your first RMD that year – almost immediately – so plan ahead.
If you've never made any IRA withdrawal, the IRS allows you to delay your first withdrawal until April 1 the year after you hit 70 1/2. After that, your RMD must be taken by Dec. 31 each year, and if you hold off on your first distribution until April 1, you'll still be required to take another distribution by Dec. 31. That means you'll have two distributions in the same tax year. If you've ever taken IRA withdrawals – even one – you must start your RMD schedule by Dec. 31 the year you turn 70 1/2. You can take the distribution in a lump sum or monthly installments, as long as you reach your RMD amount by the your annual deadline.
Because the RMD is calculated based on an annual value for your IRA accounts, you must figure your RMD every year. Each year's distribution is calculated from the value of all your accounts covered by traditional IRA rules, including qualified workplace retirements. For your first RMD, you'll need the value for each eligible account as of Dec. 31 in the tax year before you turn 70 1/2. Calculations for subsequent RMDs begin with the account values on Dec. 31 of each previous tax year. You must figure an RMD separately for each account – it makes sense to lump them all together at least a year before RMD time – but you can pull the whole distribution from only one of the accounts.
After you find the value for each IRA account, select the life expectancy table that applies to you from theIRS Publication 590-B. For most retirees, that's likely to be Table 3, the Uniform Lifetime Table.
Find your age on the Uniform Lifetime Table. For your first RMD, that age will be 70, and you add a year for each subsequent tax year thereafter. The other column gives you a distribution period. Divide your applicable Dec. 31 account value by the distribution period. In the 2017 version of Publication 590, the distribution period number for age 70 was 27.4. So if the IRA account value on Dec. 31, 2017, was $171,483, your RMD for 2017 would have been $6,259.
You can also use an online RMD calculator instead of the tax tables. Many brokerages and banks offer them.
If you inherit an IRA, the rules are different. You can either withdraw all the assets at once, withdraw them over five years or start taking required minimum distributions starting when the original owner would have turned 70 1/2 but using your own lifetime to calculate them. Spouses can often treat inherited IRAs as their own.
2018 Tax Law Changes
IRA RMD rules aren't changing for 2018, but tax rates are generally going down, so you may owe less tax on any IRA withdrawals.
2017 Tax Laws
Tax rates are generally higher for 2017, so IRA withdrawals may be taxed at a higher rate in 2017 than in subsequent years.
Dale Bye has spent more than 40 years in journalism, including 25 supervising reporters and editors at metropolitan newspapers and eight years as senior managing editor at a national sports magazine. He directed five newspaper-sponsored personal finance fairs. His fields of expertise include business and personal finance, sports, fitness and theater. Bye holds a Bachelor of Journalism from the University of Missouri.