Retirement accounts like IRAs and 401(k)s are attractive because the government allows earnings in these accounts to defer taxes—but only for so long. Once you turn 70½, you're required to withdraw a minimum amount every year from most retirement plans and pay taxes on the amount withdrawn. These mandatory withdrawals are called Required Minimum Distributions (RMD).
Plans that require distributions include:
Traditional, SEP and SIMPLE IRA (but not Roth IRA)
The federal government's Thrift Savings Plan (TSP)
RMDs are important — miss one, and you'll face an IRS penalty tax equal to 50% of the amount you should have withdrawn, but didn't. This IRS-prescribed calculation is pretty straightforward. Simply divide the value of your retirement account balance as of December 31 of the previous year by your current life expectancy factor, as published in an IRS table.
Calculating your RMD
Example: Ashley's retirement account had a $100,000 balance on December 31 of the previous year. Her IRS life expectancy factor is 27.4. She divides $100,000 by 27.4, resulting in a $3,650 RMD for this year.
If you're married to someone who is more than 10 years younger than you, and you've named your spouse as your sole beneficiary, you'll use an alternate table that requires smaller distributions. Either way, USAA can do the math for you with our RMD calculator
Managing Multiple Retirement Accounts
If you have multiple accounts that require distributions, you have to calculate distributions for each, but you can take the total required distribution from just one account if you'd like. You can greatly simplify the RMD process by consolidating multiple accounts into one rollover IRA.
Your first RMD
Your first required distribution must be made by April 1 of the year following the year when you turned 70½. For example, if you turn 70½ in February 2014, you must take your first RMD by April 1, 2015.
There's an exception to this rule: If you're still working, you can generally delay RMDs, but only from the retirement plans you participate in with your current employer. In these situations, your first distribution must be made by April 1 of the year following the year of your retirement.
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