When Do I Need to Worry About RMDs?!
- 70 ½ if born prior to July 1, 1949
- 72 if born on or between July 1, 1949 and December 31, 1950
- 73 if born on or between January 1, 1950 and December 31, 1959
- 75 if you were born on or after January 1, 1960
Now that you know which number you drew, what does it mean? Here are the basic guidelines:
What is 70 ½ or 72 or 73 or 75?
The numbers, 70 ½ through 75, represent your age. Once you reach that age, you are required to receive some of your retirement savings as taxable income and the amount you need to receive is called your Required Minimum Distribution (RMD). You’ll need to take your RMD every year by December 31st, but since the first year is often overlooked until many have a chance to speak with their tax professional (who may/should/is absolutely depended on to know these things), the IRS gives us all until April 1 the year following this first year to take their RMD and is known as the “Required Beginning Date”. NOTE: You may find you’ll need to take two RMDs that first year since the one taken April 1 technically pertains to the previous year.
So I have to start taking money from all of my retirement accounts?
You’ll notice that I said “retirement savings”, not “401(k)” or “pension”; this is because if you’re still working for the company who sponsors your 401(k) or pension and you’re not an owner of that company, you may delay your RMD indefinitely until you stop working for them! The same cannot be said, however, for any traditional IRAs you may have; these accounts don’t consider your employment status and you’ve got to get your RMDs going when the time comes regardless (perhaps another reason to roll those IRAs into your 401(k)!). Once you stop working for the plan sponsor, your Required Beginning Date will be April 1 the year following the year of separation. That said, should you choose to take your account with you when you leave (probably a good idea!), your RMD is not eligible for “rollover” to another account so you should plan to take a cash distribution of at least this amount and roll the rest into whatever account you had in mind to receive it. Of course, Roth IRAs are not subject to the minimum distribution requirement since you’ve paid all the taxes you needed to and come 2024 the RMD determination 401(k) plans follow are allowed to ignore Roth savings…seems fair. If you happen to own more than 5% of a company which sponsors a 401(k), your RMD cannot be delayed.
What if I forgot to take my RMD on time?
Whoops. Good news and bad news on this one:
- The bad news is that the IRS really doesn’t like getting paid late so they’re going to be interested in more from you than they would otherwise.
- The good news, I suppose, is that Congress encouraged them to reduce this penalty from 50% of the amount of your RMD to 25%; still a pretty hefty “donation” to make to the government. Go ahead and take a second to circle that date on the calendar if you haven’t already- you can thank me later! If the penalty is so great that you’re considering pulling all the stops, look up your local ERISA attorney (yes, they’re a thing and can honestly be a life saver) and buy an hour of their time to see if they can do anything to get you off the hook somehow and save you some money once all the dust settles.