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What do I need to know about my Required Minimum Distribution?

What is a Required Minimum Distribution (RMD)?

Certain types of retirement accounts and qualified plans stipulate a minimum amount that must be distributed from the account each year after the account holder reaches age 70.5. This amount is called the required minimum distribution, or RMD.

When do I need to take an RMD?

Generally you must take your first RMD for the year in which you turn 70.5. The required beginning date (RBD) for your first distribution is April 1 of the following year in most cases. Then, you must take your RMD for each subsequent year by December 31.

The IRS provides information on exact due dates and requirements for RMDs, based on age of account holder and type of account. For example, if you have a traditional IRA, a SEP or a SIMPLE IRA, or participate in other types of qualified plans (like a Profit-Sharing Plan, 401(k), or 403(b)), you must typically begin taking your RMD once you turn 70.5 years of age. With some inherited retirement accounts, an RMD may be required prior to age 70.5. For instance, if you are a beneficiary of an Inherited IRA, the rules can vary based on your relationship to the decedent and their age at the time of passing. Your accountant or tax professional can help you determine whether and when you need to meet an RMD.

On the other hand, some participants in qualified retirement plans may have the option to defer taking RMDs until retirement, even if they retire later than age 70.5. If you have such a plan, your employer can tell you whether you are eligible for this.

Can I re-invest my RMD?

You can take your distribution and use the funds at your discretion. However, you may consider moving the appropriate funds from the applicable tax-deferred retirement account into one of your taxable investment accounts, like an individual or joint account.

This allows you to meet the RMD, but keep your money invested so that it can continue to grow and work for you as part of your diversified, global portfolio. Check in with your accountant, wealth manager, and any other financial professional on your team to determine what will make the most sense for you in light of your financial needs and your tax considerations.