Required Minimum Distributions Loom

The tax differed party doesn’t last forever. RMD – Required Minimum Distributions Loom for Retirees. When we spend a big part of our life building our retirement portfolio, especially those who were able to meet their financial independence goals and retire early, that portfolio most likely has considerable assets in tax differed IRAs and/or 401K  accounts. It is important to realize any tax consequences that come into play. It can be worse than expected depending on the size our IRA/401K portfolio size.

Note: The SECURE Act changes the RMD age from 70 1/2 to age 72 starting in 2020. At this time until IRS info becomes available this page illustrates how RMD works based on age 70 1/2 as an example.

We may be pushed into higher tax brackets than planned on in your post age 70 ½ years once RMD begins our withdrawal and tax obligations. We also have the added pleasure of pushing our income over the low Social Security income thresholds causing even some of our Social Security to be taxable.

Required Minimum Distributions Loom

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Required Minimum Distributions Loom for Retirees- What to Know

We generally must start taking a predetermined percentage of our IRA/401K portfolio when we reach age 70½. Fortunately our Roth IRAs are not required to have RMD withdrawals. Required withdrawals aren’t until after the account owner’s death and are not part of RMD.

Another exception to age 70 ½ RMD is the Qualified Longevity Annuity Contract (QLAC). It allows delaying RMD on any QLAC investment up to age 85. QLACs are a new longevity annuity created by the US Treasury Department in 2014. This RMD tax treatment is what sets it apart from other annuities. Check out my page on the QLAC if you are not familiar with it.

Our required minimum distribution is the lowest amount we must withdraw from our account(s) each year. If our retirement lifestyle IRA withdrawals already surpass RMD minimums then we are good to go. We have met the RMD requirements. Fail to meet RMD minimum requirements and a punishing penalty of 50% awaits us.

How RMD- Required Minimum Distributions is calculated.

The required minimum distribution (RMD) for any year is based on your IRA/401K account balance(s) as of the end of the previous calendar year. Then it’s divided by a distribution period factor from the IRS’s “Uniform Lifetime Table.”

Note: There is also a separate table for when the sole beneficiary is the owner’s spouse and is ten or more years younger than the owner.

RMD (required minimum distribution) Uniform Lifetime Table and Calculation Steps:

To calculate the year’s RMD required minimum distribution amount,

Step 1– You take the age of the retiree at that EOY (Dec. 31) and then match to the associated distribution period factor.

Step 2- Divide the value of the IRA (IRA/401K owned by the RMD Retiree) by the distribution period factor to get the required minimum distribution for that year.

Step 3- Repeat steps 1 and 2 for each of your IRAs/401Ks.

Age of retiree Distribution period (in years) Age of retiree Distribution period (in years)
70 27.4 93 9.6
71 26.5 94 9.1
72 25.6 95 8.6
73 24.7 96 8.1
74 23.8 97 7.6
75 22.9 98 7.1
76 22.0 99 6.7
77 21.2 100 6.3
78 20.3 101 5.9
79 19.5 102 5.5
80 18.7 103 5.2
81 17.9 104 4.9
82 17.1 105 4.5
83 16.3 106 4.2
84 15.5 107 3.9
85 14.8 108 3.7
86 14.1 109 3.4
87 13.4 110 3.1
88 12.7 111 2.9
89 12.0 112 2.6
90 11.4 113 2.4
91 10.8 114 2.1
92 10.2 115 or older 1.9
Other Key RMD- required minimum distribution details.
  • The Deadline for taking your required minimum distribution for the Year you turn age 70 ½ is by April 1 of the following year.
  • All later years (age 71, 72, 73, etc.) must be taken by December 31st of that year.
  • The IRA Balance used in your RMD calculation is based on your December 31 balance of the previous year. If your accounts nose-dived after the first of the year it does not matter. The idea is making the calculation, withdrawing at least that amount and paying your taxes. It allows you to decide from which IRAs/401K assets that you own to take the withdrawals from. You can still manage withdrawals and maintain your portfolio asset diversity balances.

In Closing

Knowledge is power. If you have a larger IRA/401K portfolio then being aware that  Required Minimum Distributions Loom for Retirees may help you create a withdrawal and tax strategy. Before you reach the RMD age of 70 ½.

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