Required Minimum Distributions (RMDs)
- If you were born on or before June 30, 1949, you must take distributions annually.
- If you were born on or after July 1, 1949, you must begin taking distributions annually in the year you turn age 72.
These are called Required Minimum Distributions (RMDs) and are taxed as ordinary income according to your federal and state income tax rates.
RMDs are serious business. If the RMD is not taken, a 50% IRS penalty tax is assessed on the taxable amount that should have been withdrawn for the given tax year.
If you don’t need the cash, your RMD can be invested into a non-IRA account at Sit. Although the RMD is still taxable, you’re able to keep your money invested in the fund(s) of your choice.
- To take your RMD, complete the Required Minimum Distribution form. If you’d like Sit to automatically recalculate and distribute your RMD each year, be sure to check the appropriate box under the heading “Systematic Distributions.”
- Your RMD may be withdrawn in one or more distributions throughout the year, as long as the total required amount is taken by December 31st.
Required Beginning Date
- If you were born on or before June 30, 1949, you were required to begin taking distributions annually in the year that you turned age 70½.
- If you were born on or after July 1, 1949, you are required to begin taking distributions annually in the year you turn age 72.
NOTE: Your first RMD can be delayed until April 1st of the following year. If you postpone it into the following year, you will need to take two distributions that year (one for the previous year and one for the current year).
- Would you like Sit to calculate your RMD amount? Contact an investor services representative at 800-332-5580 or send an email to email@example.com.
- If you would prefer to calculate your RMD, simply take your IRA balance on December 31st and divide it by the number that corresponds to your age in the IRS Uniform Lifetime Table. If your spouse is more than 10 years younger than you and is the sole primary beneficiary of your IRA, you can use the IRS Joint Life and Last Survivor Table. This may result in a smaller RMD for you. The lengthy table is in IRS Publication 590-B located at www.irs.gov.
RMDs from More Than One IRA
- The total amount of your RMD can be taken from as few or as many IRAs as you would like.
- RMDs from company retirement plans, such as a 401(k) plan, and inherited IRAs, must be taken separately from each plan.
Determining the Non-Taxable Portion of an RMD
If you made non-deductible contributions to one or more IRAs, the IRS requires that you aggregate all your IRAs to determine the taxable amount of your RMD.
Many years ago, Jenny made a $2,000 non-deductible contribution to an IRA. Her other contributions were deductible. Today, she has three IRAs that total $10,000.
Jenny redeems $1,000. Since her non-deductible contribution makes up 20% of her total IRA balance, 20% of her $1,000 distribution (i.e. $200) is not taxable, regardless of which IRA is redeemed.
NOTE: This is a simplified example. Be sure to complete and attach IRS Form 8606 “Nondeductible IRAs” with your taxes.
IRS Uniform Lifetime Table
- Use the divisor for the age you were, or will be, on your birthday this year.
- Do not use this table if you inherited your IRA.
- Do not use this table if your spouse is your sole primary beneficiary and is more than 10 years younger than you.
IRS Uniform Lifetime Table
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Qualified Charitable Distribution
Would you like to keep your taxable income low? If you’re at least 70½ years old, you can make a qualified charitable distribution (QCD) from your Traditional, Roth, SIMPLE or inactive SEP IRA to one or more qualified charities.
Reasons to Request a QCD:
- The QCD counts toward your RMD for the year.
- You may donate up to a total of $100,000 per year.
- You’re not permitted to deduct the QCD as a charitable contribution, but since the distribution isn’t considered taxable income, it may help your tax bill. For example, if you keep your income low enough, your Social Security benefits will not be taxable (or will be taxed at a lower rate).