Some older investors need to start planning now for a financial move that needs to be completed before the end of this year.
Are you going to be at least 73 years old this year? Do you have any money sitting in an ordinary (non-Roth) IRA? If your answer to both questions is “yes,” then here’s some bittersweet news — whether or not you want to, you’re required to withdraw at least some money from the account each year. It’s called a required minimum distribution, or RMD.
Exactly how much you must withdraw depends on your age and account balance. The older you are, the bigger the required withdrawal. To put it in perspective, here are the required minimum distributions over a range of ages, assuming your IRA ended last year with a value of $100,000 (calculations are based on life expectancy numbers from the IRS and rounded to the nearest dollar).
- 73: $3,774 (3.774% of previous year’s ending value)
- 75: $4,065 (4.065%)
- 80: $4,951 (4.950%)
- 85: $6,250 (6.250%)
- 90: $8,197 (8.197%)
- 95: $11,236 (11.236%)
- 100: $15,625 (15.625%)
- 120: $50,000 (50%)
(If you’re wondering, at age 120 or older, your RMD is always half the IRA’s prior year-end balance.)
There are some footnotes to add here. Chief among them is the fact that these distributions are considered taxable income. You’ll also want to know that these figures can change if your spouse is your IRA’s sole beneficiary and ten or more years younger than you. Be sure to review the IRS materials or consult a qualified tax professional for those details.
As for timing, required minimum distributions are to be completed by the end of each calendar year, with one exception. For the year in which you turn 73, you have until April 1 of the following year to take your first distribution. If you wait, just keep in mind that you’ll face two taxable distributions in the same calendar year.
Most brokerage firms or IRA custodians will supply you with the previous year’s ending value for any retirement account subject to RMDs. However, they won’t automatically initiate these withdrawals. You’ll need to do that.
