Minimum Retirement Plan Distributions
Money cannot stay in a retirement plan account forever. In most cases, you are required to take minimum distributions or withdrawals from your 401k, IRA, or other retirement plan after you reach 72 years old. Though you can withdraw more than the minimum amount, you may have to pay more income tax on your retirement income. Estimate your next tax return so you can get an idea of what you may owe based on how much money you take from your retirement this year.
Owners of IRA accounts, age 70½ or over, have the option to transfer up to $100,000 tax-free per year to charity. These qualified charitable distributions- QCDs- offer eligible taxpayers a way to donate to charity before the end of the year. In addition, for those individuals who are at least 72, QCDs count toward the IRA required minimum distribution (RMD) for the given tax year.
Tax Guide for Retirees
Use this IRA Required Minimum Distribution Worksheet
Add Form SSA-1099 or RRB-1099 to Your Taxes
Add Form 1099-R to Your Return
Are Retirement Plan Distributions Taxable?
In general, distributions from retirement plans (not including Roth accounts) are included in your taxable income. Qualified Roth distributions are tax-free because the contributions to these plans are already taxed, unlike regular retirement plan contributions. However, if you take an early, non-required distribution, they may come with an additional tax penalty. Learn more about taxes on early withdrawals from retirement plans.
When you have retirement income, you can use IRS Form 1040 or 1040-SR to report your taxable income and deductions on your annual individual income tax return.
A rollover is a distribution from a retirement plan that is contributed directly to another qualified retirement plan or IRA. If you rollover a distribution within 60 days of receiving it, the amount is generally NOT taxable. You generally cannot rollover the required minimum distributions.
Required Minimum Distributions (RMDs)
When you prepare and file your tax return on eFile.com, you don't have to use any IRS tables or publications to figure out your distribution amounts. Once you answer a few simple tax questions, we will generate the correct tax forms for your distributions and calculate and report the correct amount on your return.
How to Determine When to Start Taking Required Distributions
The time you start taking required distributions depends on the type of retirement plan you have:
- IRAs (traditional, SEP, and SIMPLE): You must withdraw your first required minimum distribution on April 1 of the year AFTER the year you turn age 72. Each subsequent distribution is required to be made by December 31.
- Roth IRAs do not have required distributions until the owner of the account passes away.
- 401(k)s, 403(b)s, and other non-IRA retirement plans: The deadline to take your first required minimum distribution is April 1 of the year after either the year you turn 72 or the year you retire.
For IRA accounts, you can take your RMD amount all from one account if you have multiple retirement accounts. Or, you can take your RMDs from each account. 401(k) accounts are treated separately, meaning if you have an IRA and a 401(k) or other non-IRA accounts, you must take your RMD from both accounts.
When to Withdraw Money After Turning 73 Years Old
The new age to begin taking RMDs is 73, up from 72. You can withdraw money any time every year after you turn 73 years old (or the year you retire) but you must withdraw your full required minimum distribution by December 31 of each year.
Use this Uniform Lifetime table to calculate or plan this year's required withdrawal for a traditional IRA unless the sole beneficiary of your IRA is your spouse, who is at least ten years younger than you. The amounts apply whether you are single or married.
Use the IRS table below to determine when to begin taking required minimum distributions and how much to take. The table is organized by age and distribution period of your IRA balance to be withdrawn - see examples below the table.
To figure the amount of your annual RMD, use your age in the table and the matching distribution period. Take your IRA balance as of December 31 of the previous year and divide that number by the distribution period number for your age. Repeat this process for each of your IRAs if you have more than one.
For example, if the balance of your only IRA as of December 31 is $50,000 and you are 75, then you will calculate 50,000 divided by 22.9 (100,000/24.6), which equals 4,065.00. This means that $4,065.00 is your required minimum distribution.
This is the same simple formula used in an RMD calculator.
Penalties for Not Taking Required Minimum Distributions
There are serious tax penalties if you do not take your required minimum distributions. If you fail to withdraw the required minimum amount, you may have to pay a 50% excise tax on the amount that was not withdrawn. That is 50% of the difference between the required and actual distribution.
If you did not take the required distributions, you could add this to your eFile account, and the platform will help you fill out Form 5329, Additional Taxes on Qualified Plans.
You might be able to excuse yourself from any tax penalties if you missed the 60-day period for rolling your distribution amounts into another retirement plan or IRA. To do this, you will need to go through a self-certification waiver procedure from the IRS. Once the IRS qualifies you for the waiver, you send a self-certification letter to your retirement plan's administrator or trustee (who is receiving the rollover) to inform them that you qualify to be excused from the penalties.
In order to qualify for the waiver, you would need to meet one or more of the 11 circumstances provided by the IRS, including (but not limited to):
- Your home was severely damaged.
- One of your family members was seriously ill or died.
- A distribution check was misplaced and never deposited.
- You were incarcerated, or a foreign country imposed restrictions on you.
The IRS may grant you a waiver during a subsequent examination of your tax return, even if you do not go through a self-certification.
To avoid any delays and restrictions that may happen during the rollover process, and if you wish to transfer your retirement plan or IRA distributions to another retirement plan or IRA, the IRS recommends that you request your administrator or trustee to make a direct trustee-to-trustee transfer.
See more information through IRS Publication 590-B, Distributions from IRAs.
What Happens After the Death of a Plan Holder
It may be an unpleasant topic, but this is a real concern for a lot of people. For the year in which the account holder dies, the regular required minimum distribution must still be made. For the following year, the required minimum distribution will depend on the age of the beneficiary (see the table above).
The RMDs may continue being taken each year. The person who can receive the distributions are predetermined by a will written by the primary beneficiary, for example. The designated beneficiary, perhaps a son or daughter, can take the RMD each year as taxable income.
If you inherit the IRA of a deceased taxpayer as the designated beneficiary, take action when possible. The treatment of the IRA depends largely on you as a taxpayer. If you are the surviving spouse, you are the only type of beneficiary who can roll over the inherited IRA into your own IRA. Additionally, you may be able to claim the qualifying widower tax filing status if certain conditions are met. You may also have different treatments if you are disabled or chronically ill, a child under 18, or not more than ten years younger than the primary beneficiary. If you fall into these categories, you will calculate your RMDs based on the tables and rates above. Otherwise, there are two options:
- Liquidate the account and take all the funds within five years of the primary beneficiary's death.
- Take the stretch option: continue making RMDs throughout your life expectancy, giving you distributions each year.
If claiming an IRA for someone who passed away in 2020 or later, you will need to withdraw all funds from the account within ten years of the original beneficiary's death as part of 2019's SECURE Act.
Consider the tax implications of both options. While the inheritance of the IRA is tax-free, distributions are taxed. Taking a large sum may be beneficial in a smaller timeframe but may push you into a higher income bracket for those years. Taking distributions each year will allow the account to continue to grow as you take your payments.
If you inherit a retirement account and are trying to determine how to take the distribution or multiple distributions, estimate your taxes here to get an idea of the tax implications.
Related Information about Retirement Income
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