If you are at least age 70½ this year, you may need to withdraw required minimum distributions (RMD) from your retirement account regardless as to whether it is a Self-Directed IRA or not. However, while you may have no control over the minimum amount that you must withdraw, you can implement strategies to help improve the efficiency with which your RMDs are handled.

Background

You must withdraw required minimum distribution (RMD) amounts from your retirement accounts (including any Self-Directed IRAs you have) every year, beginning with the year that you reach age 70½. An exception applies to qualified plans, such as pension and 401(k) plans, 403(b) plans and governmental 457(b) plans. Under this exception, your employer can allow you to defer starting your RMD past age 70½ until you retire. This exception can only be made for individuals who do not own more than five-percent of the business that sponsors the retirement plan.

Generally, your RMD for each year must be withdrawn by December 31. An exception applies for the year you reach age 70½ (or retire in the case of an employer sponsored retirement plan that allows you to defer your required minimum distribution (RMD) past age 70½ if you are still employed), which allows you to take your RMD as late as April 1 of the following year.

If you fail to withdraw your RMD by the deadline, you will owe the IRS an excess accumulation penalty of 50 percent of your RMD shortfall.

Note: The RMD rule does not apply to Roth IRA owners.

Tip 1: Aggregate When Suitable

If you have multiple Traditional IRAs, SEP IRAs and SIMPLE IRAs, you can take the calculated required minimum distribution (RMD) from each IRA, or you can aggregate the RMD for all of your IRAs and take the total from one or more IRAs. Aggregation of your RMDs can be useful if you have IRAs from which you do not want to make withdrawals. For instance, you may have an IRA with a specific amount that you want to leave to a certain beneficiary. In such cases, you would calculate the RMD amount for that IRA, but withdraw it from another Traditional IRA, SEP IRA or SIMPLE IRA.

This RMD aggregation rule can be done for 403(b) accounts as well. However, it cannot be done for qualified plans.

Caution: Regardless of whether you decide to aggregate your RMDs, you must calculate the amount for each IRA separately.

Tip 2: Defer RMD for Employer Plans

If you have assets in a qualified plan, and you are still employed by the plan sponsor at age 70½, check with them to determine if they will allow you to defer beginning your required minimum distribution (RMD) until you retire. If so, that would allow you the flexibility to choose whether or not you want to defer making withdrawals until you retire.

If you have assets in a 403(b) account or governmental 457(b) plan, you can defer your RMD past age 70½ until retirement.

Watch for our next blog:  Tips for Improving Your RMD Process – Part 2 of 2 for more tips to help you improve your RMD process.

 

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