You cannot keep retirement funds in your account indefinitely. You generally have to start taking withdrawals from your IRA, SIMPLE IRA, SEP IRA, or retirement plan account when you reach age 70½. However, changes were made by the Setting Every Community Up for Retirement Enhancement (SECURE) Act which was part of the Further Consolidated Appropriations Act, 2020,P.L. 116-94, signed by the President on December 20, 2019. Due to changes made by the SECURE Act, if your 70th birthday is July 1, 2019 or later, you do not have to take withdrawals until you reach age 72. Roth IRAs do not require withdrawals until after the death of the owner.

Your required minimum distribution is the minimum amount you must withdraw from your account each year.

• You can withdraw more than the minimum required amount.
• Your withdrawals will be included in your taxable income except for any part that was taxed before (your basis) or that can be received tax-free (such as qualified distributions from designated Roth accounts).

Do these rules apply to my retirement plan?

The minimum distribution rules discussed below apply to:

• traditional IRAs
• SEP IRAs
• SIMPLE IRAs
• 401(k) plans
• 403(b) plans
• 457(b) plans
• profit sharing plans
• other defined contribution plans

Calculating the required minimum distribution

The required minimum distribution for any year is the account balance as of the end of the immediately preceding calendar year divided by a distribution period from the IRS’s “Uniform Lifetime Table.”

Paying the Taxes

Index Gurus offers our clients the free service to immediately pay the federal and state taxes at the time of distribution. This is a nice benefit for being a client on the institutional side of Schwab and TD Ameritrade.

Beginning date for your first required minimum distribution

• IRAs (including SEPs and SIMPLE IRAs)
  • April 1 of the year following the calendar year in which you reach age 70½, if you were born before July 1, 1949.
  • April 1 of the year following the calendar year in which you reach age 72, if you were born  after Jun 30, 1949.
• 401(k), profit-sharing, 403(b), or other defined contribution plan
  Generally, April 1 following the later of the calendar year in which you:
  • reach age 72 (age 70½ if born before July 1, 1949), or
  • retire (if your plan allows this).

5% owners

If you own more than 5% of the business sponsoring the plan, then you must begin receiving distributions by April 1 of the year after the calendar year in which you reach age 70½ (age 72 if born after June 30, 1949), even if you have not retired.

Date for receiving subsequent required minimum distributions

For each year after your required beginning date, you must withdraw your RMD by December 31.

For the first year following the year you reach age 70½ (age 72 if born after June 30, 1949),  you will generally have two required distribution dates: an April 1 withdrawal (for the year you turn 70½ (or 72 if born after June 30, 1949)) and an additional withdrawal by December 31 (for the year following the year you turn 70½ (or 72 if born after June 30, 1949)). You can make your first withdrawal by December 31 of the year you turn 70½ (or 72 if born after June 30, 1949) instead of waiting until April 1 of the following year which would allow the distributions to be included in your income in separate tax years.

Required minimum distributions after the account owner dies

For the year of the account owner’s death, use the RMD the account owner would have received. For the year following the owner’s death, the RMD will depend on the identity of the designated beneficiary.

Calculating required minimum distributions for designated beneficiaries

Generally, for individuals or employees with accounts who die prior to January 1, 2020, designated beneficiaries of retirement accounts and IRAs calculate RMDs using the Single Life Table (Table I, Appendix B, Publication 590-B, Distributions from Individual Retirement Arrangements (IRAs)). The table provides a life expectancy factor based on the beneficiary’s age. The account balance is divided by this life expectancy factor to determine the first RMD. The life expectancy is reduced by one for each subsequent year.

If the distribution is from a qualified retirement plan, the plan document will establish the RMD rules, and the plan administrator should provide the beneficiary with his or her options. The options for the RMD pay-out period may be as short as 5 years, or as long as the life expectancy of the beneficiary. (If the beneficiary is the spouse of the owner, the spouse can also choose to treat the IRA as his or her own.) Therefore, if the distribution is from a qualified plan, the beneficiary should contact the plan administrator. For IRA distributions, see Publication 590-B, Distribution from Individual Retirement Arrangements (IRAs),  or this chart of required minimum distributions to help calculate the required minimum distributions.

Generally, for individuals or employees with accounts who die after December 31, 2019, the SECURE Act distinguishes between an “eligible designated beneficiary” and other beneficiaries who inherit an account or IRA. An eligible designated beneficiary includes a surviving spouse, a disabled individual, a chronically ill individual, a minor child, or an individual who is not more than 10 years younger than the account owner. Certain trusts created for the exclusive benefit of disabled or chronically ill beneficiaries are included. These eligible designated beneficiaries may take their distributions over the beneficiary’s life expectancy. However, minor children must still take remaining distributions within 10 years of reaching age 18. Additionally, a surviving spouse beneficiary my delay commencement of distributions until the later of the end of the year that the employee or IRA owner would have attained age 72, or the surviving spouse’s required beginning date.

Designated beneficiaries, who are not an eligible designated beneficiary, must withdraw the entire account by the 10th calendar year following the year of the employee or IRA owner’s post-2019 death. Non-designated beneficiaries must withdraw the entire account within 5 years of the employee or IRA owner’s death if distributions have not begun prior to death. For IRA distributions, see Publication 590-B, Distribution from Individual Retirement Arrangements (IRAs), or this chart of required minimum distributions to help calculate the required minimum distributions.