PortalKota – Required Minimum Distributions (RMDs). A required minimum distribution, or RMD, is the minimum amount you’re required to withdraw annually from tax-deferred accounts once you reach a certain age.
Here’s how it works. Tax-deferred accounts, like Traditional IRAs or 401(k)s, allow you to contribute money pretax a significant benefit for some investors. The longer you wait to withdraw money, the longer it can grow without being taxed.
But you can’t avoid paying taxes on that money forever.
At a certain point, the IRS requires you to start taking an RMD, which is usually taxed on withdrawal.
Required Minimum Distributions (RMDs)
You typically have to take the first RMD by April 1st of the year after you reach RMD age.
A 2019 change to the law means that for people born on or before June 30 1949, their RMD age is 70 ½.
For those born after June 30, 1949, their RMD age is 72. After that first withdrawal, you’re required to take an RMD by December 31st every year.
Your RMD is calculated based on a variety of factors, including age and account balance.
Beneficiaries may also impact your RMD. Because of these factors, your RMD may vary from year to year and from account to account.
Taking an RMD is not something you want to forget. If you miss your RMD, the IRS charges a 50% penalty on the amount that should’ve been taken.
So, for example, if your RMD was $5,000 and you didn’t take it by the deadline, the IRS would issue a penalty of $2,500.
To prevent this penalty, create a reminder or set up recurring distributions on your account. A little planning to make sure you take your RMD can save you a big headache.
You have a couple distribution choices, like simply withdrawing the money or transferring it to a linked taxable TD Ameritrade account. The distribution will likely be taxed either way, but transferring it allows you to keep what’s left invested.
If you have more questions about RMDs, visit TDAmeritrade.com. Thanks for watching. TD Ameritrade is where smart investors get smarter. Make sure you like and subscribe, and don’t forget to hit the bell icon to get notified when we upload new videos.