Retirement, Savings & Investment, Smart Spending

How to Calculate Your 2013 RMD?

It’s tax time again, and many of us are scratching our heads trying to figure out how to get the best results when filing our taxes.  The long list of financial terms and acronyms can be overwhelming, and as our financial lives becomes more complicated as the years go by, so does the process of filing.  As the April deadline gets closer, one such term you might be dealing with is Required Minimum Distribution, or RMD.

What is an RMD?

A Required Minimum Distribution, or RMD, is a term that deals with retirement plans.  When a person reaches a certain age, the Internal Revenue Service requires that at least a certain amount of money, or minimum, must be taken out of a retirement plan each year.

For some retirement plans, this minimum amount must be withdrawn each year starting when the owner of the plan reaches 70 ½ years of age.  However, in some cases, if the owner has reached 70 ½ years of age but has not yet retired, then the RMD does not have to be taken out yet. In these circumstances, the owner of the retirement account must start to take distributions out upon retirement.

If plan owners do not take the RMDs correctly each year in the time frame required, they face penalties.

When Are You Required to Take RMDs?

The type of account and the way in which the account was set up dictates when RMDs must begin. For example:

  • If the retirement plan account is an Individual Retirement Account (IRA), the owner must begin to withdraw the RMD once he or she is 70 ½, even if he or she has not yet retired.
  • The same is true if the person who owns the account is also the owner of five percent or more of the business through which the retirement plan is set up; if this is the case, RMDs must be withdrawn beginning at age 70 ½ no matter what the owner’s retirement status is

In most other situations, then owners may be permitted to wait until they have retired.

Taking Withdrawals

Generally speaking, withdrawals must begin by April 1 of the year after an owner has turned 70 ½.  After that first withdrawal is made, in each of the following years withdrawals of the RMD must be taken by December 31.  This includes the first year so if the first withdrawal was made March 31, the next one must be made by December 31 of that same year, and then by December 31 every year after that.

These RMD rules apply to all plans sponsored by employers, including:

  • 401(k)s
  • 403(b)s,
  • Profit-sharing plans
  • 457(b) plans.

The rules also apply to traditional IRAs and related IRA-based retirement accounts including:

  • Self employment IRA’s (SEPs) and
  • SARSEPs.

Sometimes account owners die before they have begun to withdraw RMDs. If this happens, there are different rules regarding withdrawals taken by the beneficiary of the account.  The RMD rules apply to Roth 401(k) accounts, but only after the owner has died.

There are many online calculators that can help owners determine their RMD amounts.  One calculator can be found at