IRA Required Minimum Distributions

Your IRA and Required Minimum Distributions

If you own an IRA or a retirement plan, when you reach the age of 70 ½ you are subject to the IRS’s rules on Required Minimum Distributions. Required Minimum Distributions (RMDs) are required by the IRS because the funds in your IRA or retirement plan have been accumulating tax deferred since their inception. The US Government would like to begin to receive the tax dollars on money for which taxes have not been paid while investing in your IRA or retirement plan.

Below are the key points to understand about Required Minimum Distributions:

  • Initial RMDs are required to be taken out of your IRA by April 1st of the year after you reach age 70 ½. Subsequent RMDs need to be taken by December 31st for the following years.
  • Roth IRA’s are not subject to these rules.
  • The RMD is calculated based on your account(s) value on 12/31 of a calendar year.
  • The amount of the RMD is determined by a formula that is based on your age, life expectancy and the overall $ amount you have in your IRA’s and/or retirement accounts. The RMD amount increases every year based upon the formula.
  • Payments may be taken all at once or spread out through the year.
  • If you have multiple IRA’s, you may take the required RMD from just one IRA vs. taking money from multiple accounts.
  • If you fail to take your RMD in the calendar year as required, you are subject to a 50% tax penalty from the IRS.

For assistance in navigating the complex world of IRAs and Required Minimum Distributions, please contact our Mill City Investments Financial Advisors located at Mill City Credit Union. Thomas Walker ChFC at 763-764-6963 or Brad Palmersheim 763-764-6948 are available to help you with your IRA questions.

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