By Roger Wohlner
Required minimum distributions (RMDs) are IRS-mandated distributions from retirement accounts. Understanding how they work is important so you can make sure that you are in compliance with the rules. Here are seven things to know about RMDs.
When must you start RMDs?
Beginning on Jan. 1, 2020, the age at which RMDs from retirement accounts must commence was increased to 72. Prior to the date it was 70½. Those who had started their RMDs at age 70½ prior to Jan. 1, 2020 are required to continue their RMDs based on the old rules.
How are RMDs calculated?
RMDs are based on the account balance in your account(s) as of Dec. 31 each year. For example if you have a traditional IRA account, your balance as of Dec. 31, 2021 was used in calculating your 2022 RMD.
The account balance for the prior year-end is then matched against the appropriate IRS distribution table. For most people this is the Uniform Lifetime table, table 3 . There are different tables if your spouse is 10 years younger than you or for those with a single life expectancy.
Using the Uniform Lifetime table, for someone who will reach age 73 in 2022:
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Dec. 31 balance in IRA $250,000
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Distribution period from table 3: 26.5 years
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RMD calculation for 2022: $250,000 divided by 26.5 = $9,433.96
This is the amount they would need to take as their RMD for 2022.
There are a number of good RMD calculators available online that can aid in calculating your RMD. Several years ago the rules on reporting RMD amounts to the IRS changed requiring IRA custodians and retirement plan administrators to calculate your RMD each year and communicate this number to the IRS. The custodian will also communicate this number to you as well.
What is the deadline for taking your RMD?
Your RMD must be taken by Dec. 31 each year. The exception to this is for your first RMD. You are allowed to defer taking this one until April 1 of the following year. For those turning age 72 in 2022, they can defer their first RMD until April 1, 2023.
It’s important to keep in mind that if you defer your first RMD until the following year, you will be taking two RMDs in the same calendar year as you will still need to take your regular RMD for the following year. You will want to look at the tax implications before deciding whether to defer your first year RMD.
Which accounts are subject to RMDs?
RMDs must be taken from all employer sponsored retirement plans, including:
