FAQs – Required Minimum Distributions
When must I begin taking distributions from a Traditional IRA?
Generally, you must begin taking distributions from a Traditional IRA by no later than April 1 of the year following the year you turn age 70½. This date is often referred to as your 'required beginning date.'
What does the acronym 'RMD' stand for?
The acronym RMD stands for 'required minimum distribution.' You must generally take an RMD each year from a Traditional IRA once you reach age 70½.
How are required minimum distributions (RMDs) calculated?
Generally speaking, your RMD is calculated by dividing the December 31 fair market value of your IRA by a life expectancy factor that is determined according to IRS tables found in IRS Publication 590, Individual Retirement Arrangements (IRAs). Unless your spouse is your sole primary beneficiary and he or she is more than 10 years younger than you, the applicable life expectancy factor is determined using the Uniform Lifetime Table. If your spouse is your sole beneficiary and he or she is more than 10 years younger than you, a longer distribution period (i.e., larger life expectancy factor) is used. In such cases, the life expectancy factor is based on the actual joint life expectancy of yourself and your spouse beneficiary, recalculated annually, as listed in the Joint and Last Survivor Table.
Who is responsible for calculating required minimum distributions (RMDs) for a Traditional IRA?
Beginning in 2003, federal regulations require financial organizations to report to IRA holders if an RMD is due for the year and to calculate, or to at least offer to calculate, the amount.
If I have multiple investments within my Traditional IRA, must I calculate a separate required minimum distribution (RMD) for each investment?
No. Your RMD is calculated based on the aggregate balance of all investments held within the same Traditional IRA. However, if you have multiple Traditional IRAs, you must calculate the RMD for each IRA individually.
By what deadline must required minimum distributions (RMDs) from a Traditional IRA generally be taken?
With the exception of the year in which you turn age 70½, RMDs must generally be distributed annually by no later than December 31.
If I choose to delay my first required minimum distribution (RMD) for my Traditional IRA until April 1 of the year following the year I turn age 70½, by what deadline must I distribute my second RMD?
Your second RMD must generally be distributed by December 31 of the year following the year you turn age 70½ regardless of when you take distribution of your first RMD.
If I take more than my required minimum distribution (RMD) from my Traditional IRA in a given year, can I use the overage to reduce future RMDs?
No. Amounts taken in excess of your RMD amount may not be applied to reduce future RMD amounts.
Are required minimum distributions (RMDs) from a Traditional IRA generally taxable at the time of distribution?
Yes, RMDs from a Traditional IRA (less any nondeductible basis) are generally subject to federal taxation just as are normal distributions from a Traditional IRA. Depending on your circumstances, distributions from a Traditional IRA may also be subject to state and/or local income taxation as well.
Are required minimum distributions (RMDs) from a Traditional IRA generally subject to federal income tax withholding?
Yes. RMDs from a Traditional IRA are generally subject to federal income tax withholding unless you elect to waive withholding.
How much federal income tax withholding is generally kept out from a required minimum distribution (RMD) taken from a Traditional IRA?
As a general rule, IRA trustees and custodians must withhold 10% of your Traditional IRA distribution for federal income tax purposes unless you elect to either waive federal income tax withholding altogether or have more than 10% withheld. Depending on your circumstances, your distributions from a Traditional IRA may also be subject to state income tax withholding. (Note: Different withholding rules apply if your IRA distributions are deemed to be 'periodic distributions' as is the case with annuitized disbursements from an individual retirement annuity. In such cases, federal income tax withholding is determined according to the withholding tables used for federal income tax withholding on wages.)
If I have more than one Traditional IRA, may I combine the required minimum distributions (RMDs) for my various Traditional IRAs and take the entire required distribution amount from just on of my IRAs?
Yes. According to IRS Notice 88-38, IRA holders may generally aggregate their RMD amounts from multiple IRAs and take the entire amount from one or more IRAs if they so choose. However, if you have a beneficial interest in the Traditional IRA assets of a deceased IRA holder, any distributions you are required to take as a beneficiary may not be aggregated with the RMDs you are required to take on your own Traditional IRAs as an IRA holder.
If I have retirement savings in a 'Keogh' or 401(k) account as well as a Traditional IRA, can I aggregate my required minimum distributions (RMDs) from these plans with the RMD from my Traditional IRA?
No. IRS Notice 88-38 explicitly precludes individuals from aggregating RMD amounts from a qualified plan (e.g., a 'Keogh' or 401(k) plan) with RMDs from an IRA.
This information is not intended to be legal or tax advice. Please consult a tax, legal, or financial professional with questions.
©2003-2006 BISYS®
