You can ignore it if you want, but sooner or later the dreaded
RMD is coming to get you -- and your tax dollars. So young or
old, you might as well review some key points.
Rules for required minimum distributions (RMDs) apply to
owners of traditional IRAs and to those who inherit them and Roth
IRAs. Whether you are 20 or 70, certain
let you avoid costly missteps.
, RMDs start after age 70-1/2. One day's difference can mean a
year's tax deferral.
Say a hypothetical Ed Bass was born on June 30, 1943. He will
be 70-1/2 in December 2013. Ed must start RMDs by April 1 of the
following year: 2014.
If Ed's pal Dan Lee was born on July 1, 1943, he won't be
70-1/2 until 2014. So Dan doesn't have to start RMDs until April
You can take more than the RMD if you want. But any shortfall
draws a 50% penalty. To calculate the RMD, use the IRS uniform
lifetime table. If your IRA beneficiary is your spouse who is
more than 10 years younger, use the joint-life-and-last-survivor
expectancy table. That leads to a smaller RMD.
Your IRA custodian will calculate the RMD each year or on
Let's go back to Ed Bass. He must take an RMD by next April.
That's his 2013 RMD, based on his year-end 2012 balance. Say that
amount was $100,000.
In 2013, Bass had his 70th birthday. The uniform lifetime
table shows that at age 70 Bass has an expected life span of 27.4
years. Dividing $100,000 by 27.4, Bass must withdraw at least
$3,650 by next April to avoid a 50% penalty.
After the first April deadline, future RMDs must be taken by
each Dec. 31. So Bass must take a second RMD, using his 2013
year-end balance and his age-71 life expectancy, by Dec. 31,
On this schedule, Bass takes two RMDs in 2014. If he fears
this will push him into a higher tax bracket, he can take his
2012 RMD in 2013 instead of waiting until next April.
IRA beneficiaries have different RMD rules. Spouses can roll
over the account to their own name and act as an IRA owner.
Nonspouse beneficiaries who want to take RMDs typically start
by Dec. 31 of the year after death.
Say Ann Coe inherited an IRA from her mother, who died in
2012. Coe must start RMDs by Dec. 31, 2013. If Coe is 35 in 2013,
her life expectancy is 48.5 on the single life table. She divides
48.5 into the IRA's balance on Dec. 31, 2012.
If the balance was $120,000, Coe's 2013 RMD is $2,474. Going
forward, Coe's RMDs will be the succeeding year-end IRA balances
divided by 47.5, 46.5 and so on.
Roth IRA owners don't have RMDs. But Roth IRA beneficiaries
do, and they follow the above rules.
Distributions from inherited Roth IRAs usually are tax-free.
But the 50% fine applies to skipped RMDs.
You can aggregate some RMDs. If you have an $8,000 RMD from
one IRA this year and a $7,000 RMD from another, you can take
$15,000 from either or both of them.
But you can't count part of your withdrawal as your spouse's
RMD. "Each IRA owner must take his or her own RMD yearly," said
IRA expert Ed Slott. If one spouse withdraws an amount equal to
their combined RMDs, for instance, the other spouse will owe a
50% a penalty for any RMD not taken from his or own account.
RMDs from an IRA inherited from one decedent can't be combined
with any other RMDs. And Roth and traditional IRA RMDs can't be