Required Minimum Distributions

Are You of RMD Age?

CARES ACT WAIVES RMDs DUE IN 2020
Recently, Congress passed the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) to provide emergency support and help Americans navigate the financial impact of the COVID-19 pandemic. Under the Act, RMDs due in 2020 have been waived for IRAs and certain retirement plan accounts; in some cases, this includes the first-year 2019 RMD. Find details under CARES Act – Waiver of 2020 RMDs.

When you reach age 72,1 the IRS requires you to begin annual withdrawals from most retirement accounts (excluding Roth IRAs). These withdrawals are called required minimum distributions, or RMDs.

It's important to keep track of your RMDs. Each year's RMD must be taken by December 31, with the exception of your first year RMD. There's a hefty 50% penalty tax if you don't take them on time, or if you take less than the full amount. We encourage you to set up an automatic withdrawal plan so you don't miss an RMD. You also have the option to keep your money working for you by reinvesting your withdrawal. Give us a call to automate your RMDs today.

1: If you were born before 7/1/1949, you were required to begin RMDs at age 70½, and you must continue to take them even if you are not 72 yet. This is in accordance with RMD provisions that went into effect on January 1, 2020, under the SECURE Act.

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RMDs are required for the following accounts:2

  • Traditional, Rollover, SEP, SARSEP and SIMPLE IRAs
  • 403(b), governmental 457(b) and qualified retirement accounts
  • Designated Roth accounts in a 401(k), 403(b) and governmental 457(b). RMDs are not required for Roth IRAs during the owner’s lifetime.

Learn about your deadlines, withdrawal options, calculating your distribution and more below.

Tip

2: If you have a beneficiary account in one of the account types, please visit the Inheritance page for information about RMD rules specific to inherited assets.

Deadlines

Learn when you have to begin taking RMDs and the deadlines for first year and subsequent year RMDs. 

 

 

Beginning in 2020, in accordance with the SECURE Act, the age requirements for RMDs are:

  • If you were born on or after 7/1/1949, you must begin RMDs at age 72.
  • If you were born before 7/1/1949, you were required to begin RMDs at age 70½. You cannot wait until you are 72.

Each year's RMD must be taken by December 31, with the exception of your first year RMD.

First Year RMD: You have until April 1 of the following year to withdraw your first year RMD. You are still required to take an RMD for the second year, which is due by December 31 of that year. If you delay your first year RMD, this will result in two distributions in one calendar year, causing two taxable events, which may place you in a higher tax bracket. Be sure to discuss this with your tax advisor.

If you participate in a qualified retirement plan and own at least 5% of the company, the IRA rules above apply.

If you do not own at least 5%, or if you participate in a 403(b) or governmental 457(b), you will need to check with your employer to determine if the plan’s terms require you to begin taking RMDs when you reach RMD age or if you can wait until you retire. If the plan does not allow you to wait until retirement, the IRA rules above apply.

If you do not take your RMD, or if the amount you take is not large enough, you may have to pay a 50% excise tax on the amount not distributed as required. If you missed taking an RMD, we encourage you to contact your tax advisor to discuss your options.

On March 27, 2020, Congress passed the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), which contains a number of provisions designed to provide emergency relief and help Americans navigate the economic impact of the COVID-19 pandemic.

Under the Act, required minimum distributions (RMDs) that would have been due in 2020 for IRAs and certain retirement plan accounts have been waived. This includes first-year RMDs for 2019 that were due by April 1, 2020, as long as the withdrawal was completed in 2020.

For IRAs (Traditional, Rollover, SEP, SARSEP and SIMPLE):

  • If you have an automatic withdrawal plan for your RMD and would like to suspend it for 2020, you must contact us.
  • If you took an RMD withdrawal this year and would like to return it, please call us so we can review your options.
  • Although an RMD is not required, you may withdraw funds without penalty, subject to normal income tax rules.
  • A qualified charitable distribution (QCD) may be an option—see the Give your RMD to Charity section. A QCD may offer tax benefits even though it won’t be applied toward an RMD. Please consult your tax advisor if you have questions about the CARES Act and donating to charity.  
  • If you need help determining whether or not you should take a distribution, we encourage you to consult your tax advisor.

For 403(b), governmental 457(b) and qualified retirement plan accounts:

  • Please contact your employer or the plan contact to determine how the RMD waiver will be handled by the plan.
  • To suspend an automatic withdrawal plan for 2020, you must contact us.
  • If you do not have an alternate qualifying event, you may not be able to take a distribution from your plan.
  • If you took an RMD withdrawal this year and would like to return it, please check with your employer to determine if rollovers are available in your plan; otherwise, you may be able to roll it to an IRA.
Withdrawal Options and Forms

Find out how to submit RMD withdrawal instructions for one-time and automatic payment plans. Also consider reinvesting your RMD in another American Century Investments account or directing your RMD to a charity.
 

 

To withdraw your RMD, choose from the options listed for your type of account:

Traditional/Rollover IRAs (Non-Brokerage)

Workplace Retirement Plans (Non-Brokerage)

Brokerage IRAs, Traditional/Rollover/SEP/SIMPLE IRAs

Although IRS rules require a minimum distribution amount, you can take more than the RMD if you need the extra income. Any distribution is generally subject to taxes; therefore, please be sure to talk to your tax advisor about your needs as you plan your RMD.

Your RMD is calculated for each account, but you may be able to aggregate RMDs for the withdrawal. For IRA RMDs, you may withdraw the entire amount from a single IRA or take a portion from multiple IRAs. The same is true for 403(b)s, as long as they have the same plan sponsor. For other types of plans, such as 401(k) and 457(b), you usually have to withdraw the RMD from each account.

Remembering to take your RMD each year can be stressful. We encourage you to set up an automatic withdrawal plan, and each year we'll automatically calculate and distribute your RMD. You can choose to receive a single payment or periodic payments throughout the year. You can have the proceeds automatically reinvested in a non-retirement account, or you can have them sent to your bank account or by check. If you do not set up an automatic withdrawal plan, you will need to contact us each year.

For IRAs, you can call us or complete a form . For other types of accounts, a form is required.

Keep your money working for you by requesting an automatic reinvestment of your RMD directly into a new or existing non-retirement (taxable) account or provide one-time instructions. We offer more than 80 no-load funds, including asset allocation portfolios. Call us if you are interested in this option.

 

You may be able to make a qualified charitable contribution (QCD) using your RMD. Check with your tax advisor to determine if this is an option for you. Please keep in mind:

  • You must be 70½ or older on the date of the QCD.
  • The QCD must be made by December 31 of the RMD year.
  • If you also contribute to your IRA, the amount of the intended tax deduction typically received from a QCD may be reduced. Please check with your tax advisor.
  • The distribution must be made by check payable to the charity. We can mail the check to you or directly to the charity.
  • You may not request a QCD from a SEP or SIMPLE IRA that is still receiving contributions.
  • A QCD is not an option for 403(b), 457(b) or qualified retirement plans. 
  • American Century Investments does not verify that the recipient is a qualified charitable organization. It is your responsibility to contact the charity prior to requesting a QCD to confirm that they are a qualified charitable organization under Internal Revenue Code Section 408(d)(8).
  • There is no special IRS tax distribution code for QCDs. The distribution will be coded as a normal distribution for Traditional, Rollover, SEP, SARSEP or SIMPLE IRAs.
  • It is your responsibility to understand and comply with IRS regulations for QCDs. You will need to keep a copy of your confirmation statement and contact the charity directly to obtain a receipt of your donation for tax-reporting purposes.

How It's Calculated

Learn how your RMD is calculated. If your RMD amount isn't shown on your account statement, call us and we’ll calculate it for you. Or, calculate it yourself using our calculator.

To calculate your RMD, first find your December 31 age in the left columns of the IRS Uniform Lifetime Table to determine your life expectancy factor. Then, divide your prior year's December 31 plan value by your life expectancy factor. Each year you will use a new life expectancy factor and the prior year's December 31 value.

Age on 12/31 of Distribution Year & Required Distribution Period (Years):

Age 70-81

70:   27.4
71:   26.5
72:   25.6
73:   24.7
74:   23.8
75:   22.9
76:   22.0
77:   21.2
78:   20.3
79:   19.5
80:   18.7
81:   17.9

Age 82-93

82:  17.1
83:  16.3
84:  15.5
85:  14.8
86:  14.1
87:  13.4
88:  12.7
89:  12.0
90:  11.4
91:  10.8
92:  10.2
93:  9.6

Age 94-105

94:  9.1
95:  8.6
96:  8.1
97:  7.6
98:  7.1
99:  6.7
100:  6.3
101:  5.9
102:  5.5
103:  5.2
104:  4.9
105:  4.5

Source: Internal Revenue Service

Note: If your spouse was your sole beneficiary for the entire calendar year and your spouse is more than 10 years younger than you, you can use the IRS joint life expectancy table, which may reduce your RMD amount. You will need to let us know if you want us to use the joint life expectancy table in our calculations.

Required Distribution Example

1. Determine your age as of December 31 of the current year: Age 73

2. Determine your life expectancy from the table above: 24.7

3. Determine the total balance of your IRAs (excluding Roth IRAs) as of December 31 of last year: $300,000

4. Divide Line 3 by Line 2 to determine the RMD amount: $12,145.75

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 RMD, 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 RMD for that year.
  • As always, consult your tax advisor regarding your specific circumstances.

Taxes and Future Contributions

Learn about how RMDs are taxed and other miscellaneous information, such as if you're allowed to continue contributing to your retirement accounts.
 

Generally, RMDs are taxed as ordinary income. Consequently, they are taxable at your individual federal income tax rate. Additionally, state taxes may apply. Your taxable income may be reduced by any non-deductible or after-tax contributions you made, as well as by sending an RMD to a qualified charity.

When removing your RMD from your account(s), we will ask you for federal tax withholding instructions; if applicable, state tax will also be withheld. As always, it's best to consult your tax advisor with questions, such as how much to withhold or if directing your RMD to a qualified charity is an option.

The SECURE Act removed age restrictions for IRA contributions, so if you have earned income, you can contribute after reaching your RMD age. You may also be eligible to contribute to a Roth IRA if you meet certain adjusted gross income requirements.

Contributions to a 403(b), governmental 457(b), qualified retirement plan, SEP, SARSEP and SIMPLE IRA are generally allowed if you are still employed by the sponsoring employer.

Please consult your tax advisor to determine eligibility.

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IRS Circular 230 Disclosure: American Century Companies, Inc. and its affiliates do not provide tax advice. Accordingly, any discussion of U.S. tax matters contained herein (including any attachments) is not intended or written to be used, and cannot be used, in connection with the promotion, marketing or recommendation by anyone unaffiliated with American Century Companies, Inc. of any of the matters addressed herein or for the purpose of avoiding U.S. tax-related penalties.

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.