Required Minimum Distributions

Shawn Plummer

CEO, The Annuity Expert

What is a Required Minimum Distribution (RMD)?

A required minimum distribution (RMD) is an IRS rule that requires an owner of a qualified retirement plan to begin taking annual distributions starting at age 72 from their IRA or retirement plan. Qualified retirement plans include:

How Do RMDs Work?

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Retirement Plans Without Required Minimum Distribution Requirements

Calculating RMDs Annually

You do not have a Required Minimum Distribution calculator. Minimum distributions are calculated by dividing the qualified retirement account balance on December 31 by the life expectancy factor (Distribution Period) below.

Total Account Balance ÷ Life Expectancy Factor = RMD Amount

Example: $100,000.00 (Account Balance) ÷ 23.8 (Age 74) = 4,201.68 (RMD Amount)

Multiple Qualified Retirement Plans

If the retiree owns multiple qualified retirement plans, the RMD can be withdrawn from just one account or multiple accounts as long as the RMD equals the total account balance of all qualified retirement plans.

RMD Deadline

  • April 1st of the following year for retirees just turning age 72
  • December 31 for all subsequent years

RMD Calculation Table (2022)

AgeDistribution Period
7227.4
7326.5
7425.5
7524.6
7623.7
7722.9
7822.0
7921.1
8020.2
8119.4
8218.5
8317.7
8416.8
8516.0
8615.2
8714.4
8813.7
8912.9
9012.2
9111.5
9210.8
9310.1
949.5
958.9
968.4
977.8
987.3
996.8
1006.4
Life Expectancy Table

How are RMDs Taxed?

Required minimum distributions are taxed as ordinary income unless the funds withdrawn were previously taxed. This means RMDs are subject to Federal Income Tax and State and Local tax if applicable. Since Roth IRAs do not require required minimum distributions, there is no taxation.

Reducing Taxes

In some cases, an RMD could put a retiree in a higher tax bracket and affect Social Security and Medicare taxes. However, leveraging a qualified charitable distribution (QCD) could reduce these effects since QCDs can be excluded from taxable income.

What is a Qualified Charitable Distribution (QCD)?

A qualified charitable donation is a transfer from an IRA to a qualified charity. A QCD can be counted toward satisfying an RMD for the year. QCDs can be funded by:

Qualified Charitable Distribution (QCD) Rules
  • Age 70.5 or older as of the date of the distribution
  • $100,000 maximum amount per spouse ($200,000 total)
  • Only public charities are eligible
  • Donor-advised funds, private foundations, and supporting organizations are not eligible
  • The donor can not receive a benefit in return. No Charitable Gift Annuities.

New RMD Rules

The SECURE Act changed rules regarding required minimum distributions starting in 2020, which are:

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New RMD Start Date

Starting in January 2020, the required minimum start date is age 72 (Before 2020 was 70.5). Those who turned age 70.5 in 2019 or earlier must pertain to the previous RMD rules.

Inheriting an RMD

A beneficiary who inherits a qualified retirement account must distribute those assets within 10 years of the deceased’s death, with no required RMD during those 10 years. Those beneficiaries excluded from the 10-year rule are:

  • Surviving Spouse
  • Minor Children (until adulthood)
  • Disabled or chronically ill beneficiaries
  • Beneficiaries are less than 10 years younger than the deceased.

These exceptions are allowed to stretch RMD payments over their life expectancy.

Required Minimum Distributions and Annuities

Most annuities are “RMD-Friendly” in that if the RMD amount for the individual annuity is ever larger than the allotted penalty-free withdrawal, the annuity company will waive surrender charges to accommodate the RMD amount.

In some cases, annuities can help offset the RMD withdrawal, preserving the asset, with a premium bonus or an enhanced death benefit.

Do Annuity Payments Count Towards RMDs?

Yes, annuity payments, withdrawals, and lifetime income from a qualified annuity will count toward the year’s required minimum distribution amount.

Is There An RMD For Non-qualified Annuities?

No, non-qualified annuities are funded with post-tax money. Required minimum distributions are mandatory for pre-tax retirement plans such as 401(k) or IRA.

Estate Planning

For those retirees who do not need the income from an RMD, leveraging annuities and life insurance could maximize an estate plan for beneficiaries. One could essentially spend the RMD and preserve the entire (or close to) original investment for heirs.

Learn How To Maximize RMDs With Annuities

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Conclusion

RMDs are unavoidable with IRAs and other tax-deferred qualified retirement plans. However, there are ways to reduce taxes and/or enhance an estate plan for beneficiaries.

If the retiree turns age 70.5 in 2019 or earlier, they must follow the previous rules. If the retiree turns 70.5 in 2020 or later, the RMD start date is age 72.

If the income generated from an RMD is not needed, life insurance or annuities could leave a legacy for heirs.

Shawn Plummer

CEO, The Annuity Expert

I’m a licensed financial professional focusing on annuities and insurance for more than a decade. My former role was training financial advisors, including for a Fortune Global 500 insurance company. I’ve been featured in Time Magazine, Yahoo! Finance, MSN, SmartAsset, Entrepreneur, Bloomberg, The Simple Dollar, U.S. News and World Report, and Women’s Health Magazine.

The Annuity Expert is an online insurance agency servicing consumers across the United States. My goal is to help you take the guesswork out of retirement planning or find the best insurance coverage at the cheapest rates for you. 

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