(Updated: This version includes fixes to errors in the original article regarding timing of the first required distribution.)
Question: I am turning 70 next year and am pretty clueless on the requirements and factors for required distributions that the IRS will make me take from my IRA. Can you give me some guidance on how that works? When is the latest I have to start withdrawing if my 70th birthday is 10/15/2017?
Answer: The rule is that you must take your first required minimum distribution (RMD) for the year in which you turn 70 ½ (seventy and one-half), and you have until April 1st of the following year to take it. If you wait until the following year you will have to take two distributions that year. Since you turn 70 ½ (seventy and one-half) in 2018, you are required to take your first distribution by April 1, 2019. However, if income tax is an issue, consider taking your first distribution during 2018 so as not to double up in 2019.
Question: Can I start withdrawing sooner.
Answer: Yes, you can begin making penalty-free withdrawals from your IRA of as much as you want and whenever you want after you reach the age of 59 ½ (fifty nine and one-half) .
Question: I also have a 401k plan from my last employer. Does the amount of my RMD vary depending on whether it's an IRA or 401k?
Answer: No. They follow the same schedule. However, distributions from your IRA will not count toward RMDs from your 401k and vice versa.
Question: Does the amount of my required distribution change based on age (e.g., assuming that I start at latest allowable age, will the RMD differ from year to year)?
Answer: Yes. The IRS has tables that will help you calculate your annual RMD.
Question: Does my spouse’s age affect my RMD?
Answer: It will if she is the sole beneficiary of your IRA and more than ten years younger than you. See the IRS tables. Which one you use depends on the age spread between you and your spouse. One of the tables, the more common Uniform Lifetime Table, can be used by everyone except beneficiaries of an inherited IRA and married IRA owners whose spouse is their sole beneficiary and more than ten years younger. See IRS Publication 590 for details.
Question: Would the same rules and calculations apply to my spouse’s IRA and 401k?
Question: How do I calculate the amounts?
Answer: You divide the total amount in your IRA account at the beginning of the year by the number you get from the table. The Uniform Lifetime Table divisor for age 70 is 27.4 and it decreases to 1.9 for ages 115 and above.
Question: Will my IRA custodian do the calculation for me?
Answer: Yes, most custodians will.
Question: We have the same amounts in our IRA accounts, but with different cost basis. Does the cost basis affect the RMD, or just the taxability of the RMD?
Answer: The cost basis in your IRA is the dollar value of the non-deductible contributions you made. It only affects the taxable amount of the withdrawal. IRS Publication 590 shows you how to figure the taxable amount.
Question: Is the taxable amount of the RMD taxed as regular income?
Kenneth B. Petersen CFP®, EA, MBA, AIFA® is an investment advisor and Principal of Monterey Private Wealth, Inc., a Wealth Management Firm in Monterey. He welcomes questions that you may have concerning investing, taxes, retirement, or estate planning. Send your questions to: Ken Petersen, 2340 Garden Road Suite 202, Monterey, CA93940 or email them to firstname.lastname@example.org.