Required Minimum Distributions and What they Mean to Retirement Plans

RMDs are an important concept when it comes not only to retirement planning but to estate planning as well.  RMD stands for required minimum distribution — the IRS requires you to take out a portion of your retirement account each year and pay tax on it. If you don’t take it out, you get hit with a penalty.

When do you have to take an RMD?

It depends on the retirement account and plan – many types of plans, such as a 401K, require that distributions begin April 1 following the year that you turn 70 1/2, and you must continue for every year after that.

How much do you have to take?

The amount is based on the previous year’s balance in your retirement plan and on IRS tables that factor in your age, your beneficiary’s age, and your relationship with your beneficiary.   The tables are helpful, but there are also online calculators that can be used to compute the amount.

How do RMDs impact estate planning?

RMDs impact how much of your retirement account will be passed along to your named beneficiaries.  For example:  A Roth IRA does not require RMDs during the account holder’s lifetime, but are subject to RMDs after the death of the owner.

An estate planning attorney can work with you to ensure that all of your estate planning and retirement planning tools work together to meet your specific needs.