What is an RMD?

Across qualified retirement plans such as IRAs, 401(k), 403(b) and 457(b) plans, the IRS does not allow investors to maintain balances indefinitely. As such, federal law mandates that a minimum amount must be withdrawn each year, beginning at a certain age. This amount is known as a required minimum distribution, or RMD. 

What is my RMD age?

Your RMD age depends on the year you were born.

When am I required to take my RMDs?

Once you reach your RMD age, you are required to take them by these deadlines: 

• The year you reach your RMD age: You must take your RMD by April 1 of the year after you reach your RMD age.  

• The years after you reach your RMD age: You have until Dec. 31 to take your RMD each year. 

When should I begin taking my RMDs?

While some plans allow you to delay an RMD until you retire, the simplest approach for many individuals is to take the first RMD by Dec. 31 in the year they reach their RMD age and continue taking RMDs by Dec. 31 every year after that. With this approach, you do not have to take two RMDs in the year following the year you reach your RMD age. 

How are RMDs calculated by the IRS?

Your RMD amount is usually based on the IRS Uniform Lifetime Table and the fair market value or entire interest value of your retirement account on Dec. 31 of the prior year. 

RMDs are determined separately for each of your retirement plans and are required per individual, not per couple. If you have a spouse who is more than 10 years younger than you and who is the sole beneficiary of your account, a different life expectancy table is used, which can allow for a smaller RMD. In each case, the RMD is calculated by dividing the year-end account value by the applicable life expectancy factor. Calculations for inherited IRAs are different and depend on several factors — please see IRS Publication 590-B.   

How do I determine my RMD amount?

Contact each company that holds a qualified retirement account to confirm your RMD requirement for the year from each account. Work with your financial advisor and your tax professional to help ensure you know what you need to take out and have a plan for when you will take the distributions. 

How do I take my RMD if I have more than one retirement account? Can I combine my RMDs?

If you have more than one type of retirement plan, your ability to combine RMDs will depend on the account. 

Accounts where RMDs must be taken separately

Your RMDs must be calculated separately for each of the following accounts, even if you have more than one account within a type: 

• 401(k) plans
• Profit sharing and some other types of employer-sponsored plans
• Inherited IRAs
• Inherited 403(b) plans

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.

Accounts where you can combine RMDs

If you have more than one account within any of the following plan types, you can combine your RMD and take the distribution from one or all of your accounts of the same plan type. 

• Traditional, SEP or SIMPLE IRA
• 403(b) plans

Note: You cannot satisfy the RMD for your IRA with a distribution from 403(b) or vice versa.

Are there ways to avoid or reduce my distribution requirements?

There are strategies you can leverage, but consult your Ameriprise financial advisor or a tax professional on whether they are appropriate for your unique situation:

1. Consider strategic withdrawals from pretax accounts: Though you are not required to take distributions until your RMD birthday, if you are taking income from your assets, you can consider taking distributions from your pretax accounts as soon as you are able to, at age 59½ for most people unless a specific exception applies. This strategy allows you to spread out your taxable income over time, reducing a large jump in taxable income when you start taking RMDs. This can impact your overall tax bracket and how much you pay for Medicare.  
2. Consider a Roth conversion: Traditional IRAs and 401(k) plans are subject to RMDs, so you may want to convert some assets to a Roth IRA or Roth 401(k) to avoid distribution requirements for future years. Conversions of pretax assets to a Roth IRA are taxable, so before doing so, be sure to consider all the relevant issues. Note that RMD amounts are not eligible for conversion. 
3. Consider a qualified charitable distribution (QCD): If you are 70½ or older, you can make a QCD, which is a nontaxable distribution from an IRA sent directly to an eligible charity. If you are subject to RMDs, it will count toward your RMD for the year — and neither you nor the eligible charity will have to pay income taxes. 
4. If you’re working: If you are still working when you reach your RMD age and you are not a 5% or greater owner of the business, you may be able to postpone your RMD from the employer-sponsored retirement account with the employer you currently work for until you retire. This exception does not apply to IRAs, including SEP and SIMPLE IRAs.

Learn more: Tax strategies to consider early in retirement 

Are RMDs required for Roth IRAs? What about inherited Roth IRAs?

RMD rules do not apply to the original Roth IRA owner. However, if you are an owner of an inherited Roth IRA, your distribution requirements depend on whether you were a spouse or non-spouse beneficiary, the year you inherited the account, if you meet certain exception criteria and how you choose to treat your inherited account. 

For example, spouse beneficiaries can move the assets to their own Roth IRA instead of an inherited Roth IRA to avoid RMDs. 

Learn more: Roth IRA benefits: 5 reasons why Roth IRAs can be a powerful investment tool 

How can I avoid tax penalties?

The only way to avoid tax penalties is to adhere to federal law and ensure you’re withdrawing the correct RMD amount from the correct retirement accounts by the deadline. 

If you do not take a distribution or withdraw less than the required amount, you may have to pay a penalty of up to 25% of the amount not taken. The penalty is reduced to 10% if the shortfall is corrected within two years. You can take more than the required amount, but the extra withdrawals don't count toward RMDs for future years. 

Generally, withdrawals of pretax contributions and earnings are taxed as regular income. If you have after-tax money in your IRA or employer plan, those distributions will still count toward your RMD but won’t be taxable and are distributed pro-rata with pretax contributions. 

We can help you manage your RMDs

RMD rules can be difficult to understand. Your Ameriprise financial advisor is committed to helping you create a retirement income withdrawal strategy that manages the impact of these required distributions.