What is a Required Minimum Distribution, and when must I take it?
To understand RMDs, it is helpful to know that withdrawals from a retirement account are called “distributions.” The IRS requires account holders to withdraw a certain amount from their retirement accounts (except for qualifying distributions from a Roth IRA), beginning in the calendar year in which they turn 70½ and continuing every year, thereafter. This amount is referred to as a required minimum distribution. The RMD must be received by December 31, except for the year in which the account holder turns 70½, when it may be taken as late as April 1 of the following year. If an account holder does not take their RMD in time, the IRS will impose a significant penalty. For questions regarding exact penalty amounts, please check with your tax advisor.
How is my RMD calculated?
Forge Trust Co., as custodian, will calculate and notify you of your RMD. We use the formula provided by the IRS to make this calculation. The formula is based on the Fair Market Value (FMV) of your account at the end of the prior year, plus any distributions in the last 60 days of that year, divided by your Life Expectancy Factor, found in the Uniform Life Table in IRS Publication 590B.
Are there any early distribution exceptions?
Yes. Generally, you may be able to take early withdrawals without penalty in the following circumstances:
- Unreimbursed Medical Expenses - If your medical expenses are more than 7.5 percent of adjusted gross income for the current year
- Medical Insurance - If you lost your job, received unemployment compensation and paid medical insurance for yourself, your wife or your dependents, you might be able to withdraw the amount paid for the insurance provided you did not receive the distribution more than 60 days after finding a job.
- Disability - If a physician determines you cannot participate in any substantial activity due to physical or mental conditions.
- Beneficiary Status - Your account can be distributed to your designated beneficiaries without penalty, before the age of 59 1/2.
- Higher Education Expenses - If you paid expenses for higher education during the year, part (or all) of any distribution may not be subject to the 10 percent tax penalty.
- First Time Homeowner - You can make an early withdrawal from a self-directed retirement account if you use the money to purchase, rebuild or build your first home. The distributions are limited to $10,000 and must be withdrawn no more than 120 days after making the purchase.
- Rollover Into Another Qualified Plan - If the withdrawal is rolled over into another qualifying retirement plan within 60 days, it is not subject to the 10 percent early withdrawal penalty.
- Annuity Distributions - Withdrawals can be made from a traditional IRA that are part of a series of substantially equal withdrawals that will occur over your lifetime. You must use an IRS-approved method to calculate these withdrawals. These equal payments must continue for at least five years, or until age 59½, whichever is later. That means if you start these withdrawals at age 57, for example, they must stay the same until age 62. There is a one-time change you can make to the amount withdrawn.
Distribution exceptions are subject to change. Please seek assistance from an advisor.
What if I have reached 70½, but I have don’t have enough cash in my account to take the RMD?
In this event, you have three options:
- You can take your required distribution from one or more IRA accounts that has sufficient cash to meet your distribution requirement.
- You can have all or a portion of an asset re-registered in your name, then simply complete an RMD Asset In-Kind Request form.
- You can liquidate a portion or all of an asset by completing an RMD Cash Distribution Request form.
How do I take a distribution?
You can take a distribution by filling out the Distribution Request form.
How often are distributions allowed?
There are no rules or restrictions governing when or how frequently distributions can be taken. However, you should be aware of possible tax consequences to consider. Please see IRS Publication 590B.