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The Curious Bag
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Owners of individual retirement accounts (IRAs) are required to begin taking money out of the account when they turn 70½. These required minimum distributions, or RMDs, are taxable in the year they are taken.
Distribution Deadline
The first RMD must be taken by April 1 of the year after the IRA owner turns 70½. Subsequent distributions must be taken by Dec, 31 each year. Most 2009 RMDs were waived as part of the Worker, Retiree and Employer Recovery Act of 2008.
Amount of Distribution
There are three tables for RMD calculations, which are based on life expectancies and decrease annually. The total value of all employer-sponsored and IRA-based retirement accounts is considered when calculating RMD amounts.
Tax on Distribution
RMDs are taxed as income in the year they are taken. The tax rate for an RMD is equal to the IRA owner's regular income tax rate.
Non-Taxable Amounts
If taxable contributions were made to an IRA, the distribution of that money is non-taxable. For beneficiary IRAs, qualified distributions from a Roth IRA are also non-taxable.
Penalties
If the full RMD is not taken by the required deadline, a 50 percent penalty is assessed on the amount not withdrawn. It is possible to obtain a waiver of this penalty in some cases.
Source:
Internal Revenue Service: FAQs Regarding Required Minimum Distributions
More Information:
Internal Revenue Service: RMD Tables
Government Printing Office: Worker, Retiree, and Employer Recovery Act of 2008.
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