Individuals have many options when it comes to taking money out of their IRAs. For this question specifically, we’re looking at the deadline to begin this process. We’ll talk about these distributions and your Required Minimum Distributions (RMDs).
About IRA Distributions
Taxpayers are required to start taking RMDs by April 1st of the calendar year following the year in which the individual reaches age 73 (or 75 starting in 2033).
For example, if you turned 73 on September 1st, 2024 – you would be required to take RMDs beginning April 1st, 2025.
For employer plans (401k/403b), RMDs start the calendar year on which the individual retires from employer, so long as the employer is maintaining the plan.
Roth IRAs do not have RMDs until the original account’s owner passes away. The beneficiary owner(s) have a different set of requirements. (EVENTUALLY, LINK ARTICLE THAT ADDRESSES THIS).
If distributions taken during the year are less than the RMD for the year, a 25% penalty will apply on the amount not distributed. This penalty may be reduced or forgiven if it was due to a reasonable error and the taxpayer is taking steps to fix the insufficient distribution.
-Example math: If your RMD was $2,000 (and you had failed to take this), your penalty would be $500.00 (25% of 2,000). However, it can be reduced to $200.00 by making up the distribution.
The RMD amount for a year is generally equal to the account balance as of end of the prior year divided by the appropriate distribution factor. These factors are published by the IRS in Publication 590-B and force a larger percentage to be distributed each year you get older.
To hear more about RMDs, find an answer to a different tax question, or schedule a time to meet with one of our professionals, visit the Contact page.