When Do I Need to Take an RMD?
If you reached age 70½ prior to January 1, 2020, the IRS requires you to take Required Minimum Distributions (RMDs) on most IRAs and retirement plans and pay income tax on the taxable portion of the withdrawal. If you turn age 70½ after January 1, 2020, RMDs begin the year in which you reach age 72.
For the first RMD, you can take your RMD by December 31 or delay the RMD until April 1 of the following year. This option is available for your first RMD only. If you decide to delay taking your first RMD, you will have to take two RMDs in that year, which can put you in a higher tax bracket and will result in your second RMD being higher than it would’ve been if you had taken your first RMD the previous year.
After your first RMD, subsequent RMDs must generally be withdrawn by December 31 of that year.
Quick Note: Traditional IRAs, Rollover IRAs, SEP IRAs, SIMPLE IRAs, Keoghs, and Traditional and Roth 401(k)s are all subject to required minimum distribution rules. Roth IRAs are not subject to RMD rules unless it is an inherited Roth IRA. Please see section below regarding RMDs for inherited IRAs.
How Much Do I Need to Take?
RMDs are determined by your age, your account balance and your distribution period, as defined by IRS life expectancy tables.
To calculate your RMD, combine your IRA balances as of December 31 of the previous year, then divide that amount by a life expectancy factor (see IRS Publication 590 for the Uniform Lifetime Table, the most commonly used chart to figure mandatory distributions).
Quick Note: You can take more than your RMD; however, if you don’t take the required minimum distribution from your account, you will be subject to a 50% tax penalty on the difference between the amount you withdrew and the amount you should have withdrawn.
Do I Need to Take an RMD for an Inherited IRA?
For IRAs inherited from original owners who passed away before January 1, 2020, you will need to take RMDs. This applies to both inherited Traditional IRAs and inherited Roth IRAs. RMDs must begin by December 31 of the year after the death of the IRA’s original owner. If you inherit an IRA from your spouse, you can choose to put the IRA assets into an IRA in your own name.
For IRAs inherited from original owners who passed away after January 1, 2020, distributions to fully deplete the account generally must be taken within 10 years of the date of death of the account owner. This applies to both inherited Traditional IRAs and inherited Roth IRAs. If this applies to you, you may request your distributions by logging into your account or by calling us.
Exceptions to the 10-year rule include when the beneficiary is: a surviving spouse, a minor child (full
distribution required within 10 years of the year in which the child reaches the age of majority), disabled or chronically ill, and/or is less than 10 years younger than the original account owner.
Tax rules can be complex. We recommend you consult with a tax advisor if you meet any of these exceptions.
Quick Note: If you don’t take the required minimum distribution from your account, you will be subject to a 50% tax penalty on the difference of the amount you withdrew and the amount you should have withdrawn.
What Can I Do With My RMD?
If you choose, you can request your RMD as a cash distribution and spend the money. If you don’t need to spend the money, you can reinvest the money into a regular account with Homestead Funds. We can transfer your RMD directly to that account for you. You may also consider using your RMD to fund an Education Savings Account or UGMA/UTMA account for your children, grandchildren or other beneficiaries.
Use the Traditional/Inherited IRA Required Minimum Distribution Form to request your RMD paid to you or transferred into another non-IRA account with Homestead Funds. The form should be mailed to the address on the form.