A required minimum distribution (RMD) is the annual amount of money that must be taken from a qualified retirement plan, such as an IRA, SEP, 401k or any other employer sponsored plan. This distribution has to be taken no later than April 1st of the year following the account owners turns 70½ birthdate. This rule is a bit tricky though, as it sounds like you don’t need to worry about your distributions until after you turn 71. Don’t be fooled, if you wait the April 1st the year after you turn 70½, you will have to take another RMD by December 31 of that same year. Annual RMDs are required each subsequent year no later than December 31st.
Waiting until the Aril 1st deadline following your 70 ½ birthday is a one time option and requires that you take an additional RMD that same tax year. If these distributions are large, it may push you in a higher tax bracket. It may be wise to plan ahead for your firs RMD to determine the best time to begin your distributions!
Calculating RMDs
Your RMD depends on your age, total amount of qualified money and your life expectancy. You will need to use the IRS Uniform Life Expectancy Table to determine your life expectancy. This table is key is learning how much required distributions you need to take from your qualified accounts. To calculate your RMD, please do the following. Figure out what your total amount of qualified money you have as of December 31st for the end of the previous year. Then use the Uniform Life Expectancy table to see what your divisor is based on your current age. Divide your account value by that divisor and there you have it folks, your RMD! The rule of thumb is around 4% required distributions each year.