Required Minimum Distributions Guide
The IRS requires that you take money from IRAs and other retirement accounts when you reach a certain age. These withdrawals are called required minimum distributions (RMDs).
When you reach age 70½, you generally must begin making withdrawals from most IRAs and employer-sponsored retirement plans, such as a 401(k).1 You'll need to follow IRS guidelines for these withdrawals.
The required minimum distribution rule applies to traditional, Rollover, SEP-, SARSEP- and SIMPLE-IRAs. You do not have to take a required minimum distribution from a Roth IRA at any age.
Note: Consolidating your IRAs can make tracking your RMDs easier. Learn more.
When to Take Distributions
You must take your first minimum distribution by April 1 of the year after you reach age 70½.1 If you take your first distribution between January 1 and April 1 of that year, you must take your next distribution on or before December 31 of the same year. For each year that follows, you must take your minimum distribution on or before December 31.
Generally, you will owe ordinary income taxes on your distribution in the year you receive it. If you made non-deductible contributions to your IRA, a portion of your distribution will be tax free.
Your required minimum distribution generally is based on your life expectancy, beginning in the year you attain age 70. Find your age on the "Distribution Periods" table from the IRS below to determine the number of years to use in your calculation.
However, if your spouse is the sole beneficiary of your IRA and is more than 10 years younger than you, the IRS allows you to use the joint life expectancy of you and your spouse. This calculation, which uses a different IRS table, will result in lower required minimum distributions. Call an American Century Investment Consultant or your tax advisor for help with this calculation.
Sample Required Distribution Periods
|Age on 12/31 of Dist. Year||Req. Dist. Period (Years)||Age on 12/31 of Dist. Year||Req. Dist. Period (Years)||Age on 12/31 of Dist. Year||Req. Dist. Period (Years)||Age on 12/31 of Dist. Year||Req. Dist. Period (Years)|
Source: Internal Revenue Service
Follow the steps below to estimate your required minimum distribution. Consult your tax advisor regarding your specific circumstances:
Required Distribution Example
|Determine your age as of December 31 of the current year:||Age 71|
|Determine your required distribution period from the table above:||26.5|
|Determine the total balance of your IRAs (excluding Roth IRAs) as of December 31 of last year:||$300,000|
|Calculate your required minimum distribution for the current year (divide Line 3 by Line 2):||$11,321|
This hypothetical information is for illustrative purposes only and not intended to represent any particular investment product.
As the name indicates, your required minimum distribution must reach a minimum amount. The IRS rules are specific and strict. If you do not take (at least) your required minimum distribution, you will be subject to a 50% penalty tax on the amount you did not take.
For example, if you are required to withdraw $10,000 this year but take only $9,000, you may be subject to regular income taxes on the $9,000 and a 50% penalty tax on the $1,000 you left in the account (the excess accumulation). You also must withdraw the remaining $1,000 next year along with your required minimum distribution for that year.
Although IRS rules require a minimum distribution amount, you can take more than the minimum if you need the extra income. Talk to your tax advisor about your needs as you plan your required minimum distribution.
Keep Your Money Working for You
Just because you've reached 70½ doesn't mean you can't keep your money working for you. If you'd like to keep your RMD money invested, you can exchange it into a taxable account. We offer more than 80 no-load funds, including asset allocation portfolios. Review our funds or call us to discuss your goals and we can help you determine the right funds for your situation.
How to Take Distributions
Generally, required minimum distributions are taken proportionately from all IRAs on file. However, if you prefer, you may request that we take your distribution from a specific account.
Distributions after Death
Required minimum distributions from your IRA after your death are based on who you name as beneficiary and your date of death:
- If you die before April 1 of the year after you reach age 70½ or your IRA is a Roth IRA, the beneficiary's required minimum distributions would be calculated using his or her life expectancy.
- If you die on or after April 1 of the year after you reach age 70½, the beneficiary's required minimum distributions would be calculated using the longer of his or her life expectancy or your life expectancy based on your age at death. This allows a beneficiary who is older than you to use your life expectancy, which would result in smaller minimum distributions.
- If you die after reaching 70½ and have not taken your RMD for the year, your beneficiary must take the remaining amount of your RMD for the year in which you die.
For purposes of calculating the required minimum distributions, the designated beneficiary is determined on September 30 of the year following your death.
Visit the IRS website for more information about required minimum distributions.
1If you are a 403(b), governmental 457(b) or a qualified plan participant who is not a 5% owner, your required beginning date is generally April 1 of the year you reach 701/2 or after you retire, whichever is later. Check with your employer to determine when you are required to take a distribution from your plan.
This information is for educational purposes only and is not intended as tax advice. Please consult your tax advisor for more detailed information or for advice regarding your individual situation.