Required minimum distributions (RMDs)

Key Points

  • At age 70½, federal law requires you to withdraw a minimum amount from most retirement savings accounts on an annual basis.
  • You must withdraw from each plan type that is subject to RMDs.
  • There are severe tax penalties for not following RMD rules.

After you reach age 70½, you are generally required by federal tax law to withdraw a minimum amount from your retirement savings plans each year. These withdrawals are called required minimum distributions (RMDs).

When to begin taking RMDs

You are generally allowed to take penalty-free distributions starting at age 59½. However, by April 1 of the year after you reach age 70½, you are required to begin taking RMDs from your IRAs.

Depending upon the terms of your 401(k) or other employer plan, you may be able to delay taking RMDs until April 1 of the year following the later of the year you attain age 70½ or the year you retire, provided you are not a 5% or greater owner of the business. Check with your plan administrator for details.

For subsequent years, you have to withdraw your RMD amount from your plans by Dec. 31 of each year. This includes the year after you turn age 70½, even if you take your first withdrawal that year.

For example, if you turned 70½ in October 2015, your first RMD must be taken by April 1, 2016 and your second RMD must be taken by Dec. 31, 2016. Most IRA owners take their first RMD in the year they turn 70½ rather than delaying until April 1 of the next year.

What you do with RMDs is generally up to you — you may be able to take distributions in cash or in kind (e.g., as stock) which you can then reinvest or move into a brokerage account. The amount of each year's RMD depends on your age and the account balance at the end of the previous year.

Determining RMD amounts

RMDs are determined separately for each of your retirement plans and are required per individual, not per couple. The amount of the distribution is usually based on the uniform life expectancy table below and the Dec. 31 value of that plan. A different table is used if you have a spouse beneficiary who is more than 10 years younger than you. In each case, the RMD is calculated by dividing the year-end account value by the applicable life expectancy factor.

Uniform lifetime table

Age Applicable divisor Age Applicable divisor Age Applicable divisor
70 27.4 86 14.1 102 5.5
71 26.5 87 13.4 103 5.2
72 25.6 88 12.7 104 4.9
73 24.7 89 12 105 4.5
74 23.8 90 11.4 106 4.2
75 22.9 91 10.8 107 3.9
76 22 92 10.2 108 3.7
77 21.2 93 9.6 109 3.4
78 20.3 94 9.1 110 3.1
79 19.5 95 8.6 111 2.9
80 18.7 96 8.1 112 2.6
81 17.9 97 7.6 113 2.4
82 17.1 98 7.1 114 2.1
83 16.3 99 6.7 115+ 1.9
84 15.5 100 6.3    
85 14.8 101 5.9    

Source: 2015 IRS Publication 590-B, page 58

Inherited IRAs

If you are a beneficiary of an inherited IRA, your distribution requirements depend on whether the original owner or participant died before or after their required beginning date, whether you are a spouse or nonspouse beneficiary, and how you choose to treat your inherited account. There are several options available; your Ameriprise financial advisor can help you decide on an approach that is appropriate for you.

Avoiding tax penalties

There is a severe tax penalty for not following the RMD rules. If you do not take a distribution or if you withdraw less than the required amount, you may have to pay a penalty equal to 50% of the amount not taken. You can always take more than the required amount, but the extra withdrawals don't count toward your required distributions for future years.

Generally, withdrawals of pretax contributions and earnings are taxed as regular income. Withdrawals of RMDs from inherited Roth accounts are tax-free if certain requirements are met. Your financial advisor can help explain the tax treatment for your withdrawals.

RMDs for Roth IRAs, Roth 401(k), and Roth 403(b) plans

RMD rules do not apply to the original Roth IRA owner. RMD rules do apply to beneficiaries who settle to an inherited Roth IRA. Spouse beneficiaries can move the assets to their own Roth IRA instead of an inherited Roth IRA to avoid RMDs.

Roth accounts in 401(k) and 403(b) plans are subject to RMD requirements, so you may want to roll your plan to a Roth IRA to avoid the distribution requirements. Before doing so, be sure to consider the effect of this decision on the five-year holding period for qualified distributions if you have not met the five year requirement in your employer plan.

RMDs from more than one plan

If you have more than one retirement plan, your RMDs must be calculated separately for each plan. However, if you have more than one IRA, whether a Traditional, SEP and/or SIMPLE IRA, you can then add the RMDs and take the combined distribution amount from any one or more of your IRAs. Similarly, if you have more than one 403(b) plan, you can take the combined distribution amount from one or more of your 403(b) accounts. You cannot, however, satisfy the RMD for your IRA with a distribution from your 403(b) or vice versa.

For 401(k) plans, profit sharing and some other types of employer-sponsored plans, and for inherited IRAs or inherited 403(b)s, you must take an RMD separately from each plan, even if you have more than one plan within a type. For example, if you have two 401(k) plans and two inherited IRAs, you will generally need a total of four withdrawals to satisfy your RMD requirements.