The RMD is a source of tax revenue for the IRS on tax-deferred retirement accounts.
Roth IRAs are not subject to the lifetime RMD rules since no distributions are required during the lifetime of the owner. However, Roth IRAs are subject to RMD rules after the death of the owner of the Roth IRA, with a 50 percent penalty if such distributions are not made.
The RMDs are based off your account balance from Dec. 31 of the previous year.
"To calculate your RMD, the easiest way is to find an online calculator (i.e. on the IRS website [or] custodians like TD Ameritrade, Charles Schwab, etc. provide them)," said Sara Rajo-Miller, investment advisor at Miracle Mile Advisors. "It is calculated by dividing your account balance by a life expectancy factor, provided by the IRS."
Failure to withdraw the RMD on time could result in a 50 percent penalty.
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"You technically have the whole year to take them," said Rajo-Miller. "We generally advise that you wait until the end of the year so it can keep growing, unless you need it to live on." There is an option to defer your first RMD until the next year, but this can result in your paying more taxes the next year, she said.
If you mistakenly don't take your RMD, don't worry. You should simply take out your RMD as soon as you realize, fill out form IRS 5329 and then write a letter to the IRS explaining the situation and why it occurred. Most of the time, you won't have to pay the penalty if you follow these steps, said Carolyn McClanahan, a certified financial planner and founder/director of financial planning at Life Planning Partners.
For many retirees, the RMD may not even be a problem.
"The chances are decent that if they're taking retirement income from their IRA, it'll probably be more than the RMD," said Tim Maurer, a CFP who is wealth advisor and director of personal finance for Buckingham and The BAM Alliance.
In that case, your RMD has been satisfied, Maurer said.