Minimum Distributions

How does the minimum distributions from retirement plans work?

You are required to receive a minimum distribution from many retirement plans. You must begin to receive distributions from your qualified retirement plan by April 1 of the year that follows the later of:

• the calendar year in which you reach age 70½ or

• the calendar year in which you retire.

How much are the minimum distributions?

Your required minimum distribution (RMD) from a traditional IRA is figured for each year by:

• dividing the IRA account balance as of the close of business on December 31 of the preceding year by the applicable distribution period or life expectancy.

The IRA balance is the amount of all IRAs at the end of the year preceding the year for which the required minimum distribution is being figured. For more information, see Publication 590, Individual Retirement Arrangements.

Minimum distribution amounts

A minimum distribution can be either:

• the entire amount in the plan or

• a regular periodic distribution in an amount large enough to use up the entire amount over:
  • your life expectancy,

  • the joint life expectancies of yourself and a designated surviving beneficiary, or

  • a shorter period of time.

What are the penalties for not withdrawing minimum distributions?

If you do not receive the minimum distribution, an excise tax may be imposed.

What is the tax penalty for not withdrawing the minimum distribution amounts?

The tax is 50% of the difference between the minimum distribution and the amount actually distributed of the tax year.