Q: What is a Required Minimum Distribution (RMD)?

Required Minimum Distributions (RMDs) are required of all traditional IRA owners upon reaching age 73, regardless of whether or not they are retired or want to take the distribution. Traditional IRA owners are not required to withdraw all of the assets, but they must withdraw at least a minimum amount on an annual basis. Failure to withdraw the RMD could result in a 25% penalty on the portion computed to be withdrawn if you don't take it.

RMDs are calculated by taking the Fair Market Value on December 31st of the year preceding the RMD and dividing that by the Life Expectancy Factor of the IRA owner. The Life Expectancy Factor is found by looking at one of two tables depending on the IRA owner's marital status, how much older they are than their spouse or if they have multiple beneficiaries.

The Required Beginning Date (RBD) deadline for the traditional IRA owner's first RMD is April 1st of the year that follows their turning 73. After the first RMD, the RMD must be made during the current tax year (by December 31st). Any time the member chooses to delay his/her first RMD until the following year, a second RMD must still be made during that year. For example: If you turn 73 in October of this year, you have until April 1st of next year to take your first RMD. If you choose to take your first RMD next year, then you will have to take two RMDs in the same year. Each proceeding RMD must then be taken by December 31st of each year.