If you save for retirement in a qualified plan, such as a 401(k) plan or an IRA, the government currently requires you to take withdrawals from these accounts during retirement. The withdrawals, known as required minimum distributions or RMDs, are taxable so it’s a good idea to plan ahead and avoid unexpected tax consequences.
Here is some basic information about RMDs. It is offered with the caveat that RMDs have complex rules. It’s important to talk with your financial or tax professional before taking action.
If your 73rd birthday is in 2025 , your first RMD must be taken by April 1, 2026. Your second RMD by December 31, 2026, your third RMD by December 31, 2027, and so on.1
If you delay your first distribution until April 1, 2026 , then you will need to take two RMDs in the same year.1
If you have multiple 401(k) plan and IRA accounts , you typically must calculate the RMD for each one of them. You can, however, withdraw the entire amount from a single account.2
If you’re still working at age 73 , you don’t have to take an RMD from your workplace retirement plan account (as long as the plan allows it). This exception does not apply to traditional IRAs. You must take RMDs from traditional IRAs, even if you’re still working.2
If you inherit an IRA from a spouse (after 2019) who already reached age 73, you will normally need to take an RMD for the year of death, if your spouse did not already take one. If your spouse dies before age 73, you may be able to keep the inherited account, roll it over into your IRA, or withdraw the money in a lump sum or over a period of time.2
If you inherit an IRA from someone other than your spouse (after 2019), usually the funds must be completely withdrawn from the account within 10 years. RMDs may be required if the person from whom you inherited the account was already taking RMDs.4 There are some exceptions.
If you miss an RMD deadline or you don’t withdraw the full amount, penalties are steep. The penalty tax is 25 percent of the amount you failed to withdraw. If you correct the issue within two years, the penalty tax is lower.1
If you own a Roth IRA or Designated Roth account in workplace plan, you do not have to take RMDs—unless you inherited the account. In that case, RMD rules usually apply.1 Again, the rules governing RMDs are complex.
If you would like help, or if you have questions, please get in touch. Call 605-352-9490 in Huron or 605-357-8553 in Sioux Falls.
Not a Cornerstone client?
Rules regarding Required Minimum Distributions (RMDs) can be complex, and missing a deadline can be costly. We help our clients navigate RMDs and the many other pieces of a comprehensive financial plan. How can we help you? Call 605-357-8553 or email cfsteam@mycfsgroup.com today and schedule your complimentary, no-obligation appointment.
Sources
- https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-required-minimum-distributions-rmds
- https://www.irs.gov/retirement-plans/rmd-comparison-chart-iras-vs-defined-contribution-plans
- 11 https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-beneficiary
- 12 https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-beneficiary
CSP #707048 (in CGC Weekly Commentary) Exp. 1.27.26