While its tax deferral is a powerful incentive to save, the Traditional Individual Retirement Account (IRA) was never meant to shield those savings from the IRS indefinitely. Consequently, account owners are required to start withdrawing a certain amount from their Traditional IRAs each year once they reach age 70½. These withdrawals, called required minimum distributions (RMDs), are governed by a rather complex set of rules and regulations. Below are a few of the questions you may have, along with a general description of the applicable rules governing RMDs.
How are RMDs calculated?When determining your RMDs, here are some facts to keep in mind:Your RMD is calculated by dividing the fair market value of your IRA as of December 31 of the prior year by a life expectancy factor that is determined according to Internal Revenue Service life expectancy charts . Any withdrawals from a Traditional IRA, including RMDs, are added to ordinary income and taxed accordingly
During your lifetime, you will generally use the Uniform Life Expectancy Table to determine your life expectancy, with one exception. If your spouse is more than 10 years younger than you, and is your sole beneficiary, then your RMD will be determined based on your joint life expectancy
Depending on when I take my RMDs, could I be forced into a higher tax bracket?
The first RMD must be made by April 1 of the year after you reach age 70½. This is called your required beginning date (RBD). The deadline for all subsequent RMDs is December 31. Even though the first RMD may be postponed until the year after you turn 70½, it’s often smart not to wait. By delaying the distribution, you’ll be forced to take two RMDs in the year you turn age 71½. Besides paying income tax on two withdrawals, the added income may also nudge you into a higher tax bracket.
How may I calculate my minimum withdrawal if I have more than one IRA?If you have several IRAs, you must calculate the RMD separately for each account You can allocate RMDs in any combination you want. If one IRA is invested in a depressed market sector, you can take the entire amount from your other IRAs. Keep in mind that if you DO NOT want an RMD withdrawn from one of your IRAs, let your financial institution know. Some IRA providers automatically transfer RMDs into a separate non-IRA account to help you avoid possible penalties
Spouses—even though they file taxes jointly—must do their RMD calculations separately
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