What is a Minimum Required Distribution

When do they start

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Required Minimum Distributions (RMD or MRD) start the year the owner becomes 70 1/2.  The you must take a Required Minimum Distribution by April 1st of the year after you turn 70 1/2.   If you choose to wait until then you will have to take two RMDs in that year.

After your Required Minimum Distributions start you must take one each year.  There is a formula for determining how much you need to take.  You can see our list of Required Minimum Distribution calculators here.

When do they stop

Technically, they never stop.  There are subtle ways to have them seem to stop.  For instance, if you a qualified money annuity  (IRA money) you can annuitize the annuity.  This removes the money from the Required Minimum Distribution calculation.  Annuitization is an irreversible event.

Penalties for missing a Minimum Required Distribution (MRD or RMD)

If you don’t take your Required Minimum Distribution as required you will pay a penalty to the IRS.  The penalty is 50% of the amount you did not take out.

Consider this scenario:

$10,000 is what you were to take out.

$8,000 is what you actually took out.

$2,000 is how much you forgot to take out.

$1,000 is the penalty you pay to the IRS.  Keep in mind you will have to pay taxes on the full $10,000 too!

How do you correct a missed RMD

We have a checklist or guide to correcting this issue.  We make this available on our other website.

Posted on by ; rloek@calrima.com