Different Qualified Plans Have Different Minimum Required Distributions Rules
Qualified plans were created to help workers save for their retirement. Most plans allow tax-deferred growth of tax-deductible contribution made during your working career. And most plans require an annual minimum required distribution (RMD) after age 701/2. All RMDs are taxed as ordinary income. But what rules apply for different qualified plan distributions?
You can categorize qualified plans as personal or company-based. The personal plans include your individual retirement account (IRA) and your Roth IRA. Examples of company-based plans are 401(k), Roth 401(k), 403(b), individual retirement annuity. All Roth plans grow tax-free with tax-free distributions because they're funded with after tax contributions.
RMDs must begin after turning 701/2 according to rules for IRA distributions. However, if you're still working for a company offering a qualified plan you can delay making RMDs from it until you retire. Also RMDs are based on the aggregrate of accounts under a particular plan - not among different plans. Check with your plan administrator for any special rules associated with your plan.
RMDs for you as an IRA owner must begin by April 1st following the year you turn 701/2. But, if you wait until then, you'll still have to make your 2nd MRD by Dec. 31 of that same year. This makes for two MRDs within one tax year which may push them into a higher tax bracket and tax rate applied to them. It's probably better to begin your first MRD by Dec. 31 of the year you turn 701/2, and then make your 2nd MRD by Dec. 31 of the following year to minimize the income tax rate applied to them. Remember, your RMD income adds to all your other taxable income - such as working income, or pension income, and possibly some Social Security income if it pushes your total income high enough.
Every RMD an owner makes is equal to the aggregate value of all his IRA accounts (not including Roth IRAs) on Dec. 31 of the year preceding the year you make that RMD - divided by your (remaining) life expectancy as determined by IRS publication 950 Appendix C. Use Table III in Appendix C for this, or Table II if you're married with a spouse more than 10 years younger. Table I is only for beneficiaries of an IRA whose owner has died.
You simply look up your age in table III and read the corresponding (remaining) life expectancy for your divisor in your RMD calculation. You'll have to re-look up Table III's value for future annual RMDs you must make as you age. Take your RMD from any account among your IRAs.
What if you also have a 403(b) plan and you're retired. Whatever RMD is appropriate for that plan is based only on that plan - and not your IRA accounts. So check with your plan administrator.
Interestingly a Roth 401(k) has required RMDs but they're tax free as are all Roth distributions. If you want to continue to enjoy the tax free growth that a Roth account can give you, you may transfer your Roth 401(k) money tax-free to your personal Roth IRA to prevent having to make any RMDs at all.
You can categorize qualified plans as personal or company-based. The personal plans include your individual retirement account (IRA) and your Roth IRA. Examples of company-based plans are 401(k), Roth 401(k), 403(b), individual retirement annuity. All Roth plans grow tax-free with tax-free distributions because they're funded with after tax contributions.
RMDs must begin after turning 701/2 according to rules for IRA distributions. However, if you're still working for a company offering a qualified plan you can delay making RMDs from it until you retire. Also RMDs are based on the aggregrate of accounts under a particular plan - not among different plans. Check with your plan administrator for any special rules associated with your plan.
RMDs for you as an IRA owner must begin by April 1st following the year you turn 701/2. But, if you wait until then, you'll still have to make your 2nd MRD by Dec. 31 of that same year. This makes for two MRDs within one tax year which may push them into a higher tax bracket and tax rate applied to them. It's probably better to begin your first MRD by Dec. 31 of the year you turn 701/2, and then make your 2nd MRD by Dec. 31 of the following year to minimize the income tax rate applied to them. Remember, your RMD income adds to all your other taxable income - such as working income, or pension income, and possibly some Social Security income if it pushes your total income high enough.
Every RMD an owner makes is equal to the aggregate value of all his IRA accounts (not including Roth IRAs) on Dec. 31 of the year preceding the year you make that RMD - divided by your (remaining) life expectancy as determined by IRS publication 950 Appendix C. Use Table III in Appendix C for this, or Table II if you're married with a spouse more than 10 years younger. Table I is only for beneficiaries of an IRA whose owner has died.
You simply look up your age in table III and read the corresponding (remaining) life expectancy for your divisor in your RMD calculation. You'll have to re-look up Table III's value for future annual RMDs you must make as you age. Take your RMD from any account among your IRAs.
What if you also have a 403(b) plan and you're retired. Whatever RMD is appropriate for that plan is based only on that plan - and not your IRA accounts. So check with your plan administrator.
Interestingly a Roth 401(k) has required RMDs but they're tax free as are all Roth distributions. If you want to continue to enjoy the tax free growth that a Roth account can give you, you may transfer your Roth 401(k) money tax-free to your personal Roth IRA to prevent having to make any RMDs at all.
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