ID-100174763Question: My mom has been hearing that she needs to take money out of her retirement account. What is this all about?

Answer: She’s hearing about “required minimum distributions,” abbreviated “RMD.”

Background

Tax law requires taxable withdrawals from traditional IRAs and 401(k) accounts once a person reaches age 70 1/2. The withdrawal must happen every year, and the amount is determined based on IRS tables.

As with everything with taxes, it’s not quite as simple as saying the withdrawal must happen when a person turns 70 1/2. Here’s the rules for when the withdrawal must take place:

  1. When someone turns 70 1/2, the first withdrawal must happen by April 15th of the following year
  2. Going forward, the mandatory withdrawal must happen by December 31

Example

Mary turns 70 1/2 on March 10, 2015. She must take her first RMD by April 1, 2016. Her second RMD will need to be taken by December 31, 2016, and all future RMDs must be taken by December 31 each year.

Exceptions

If someone in a 401(k) plan continues working as an employee after they turn age 70 1/2, they are not required to start taking RMDs from their 401(k) until they retire. This does not apply to IRAs, including SEP and SIMPLE plans — RMDs must be taken from these accounts once you reach 70 1/2 even if you’re still working. 

This exception also doesn’t apply to anyone who is a more-than-5% owner of the business they are working for.

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