Penalties are stiff if you fail to take the full amount of your required minimum distributions (RMDs) from your retirement accounts. This generally includes 401(k)s and traditional IRAs—but not Roth IRAs if you are the original owner.
The importance of taking RMDs on time cannot be overstated. Penalties can be 50% of the outstanding minimum distribution due to you. It is wise to be familiar with the rules, make these mandatory withdrawals part of your annual financial routine, and speak with your J.P. Morgan advisor as soon as possible. Beyond helping you avoid pitfalls, we also can help you explore strategies that may amplify the value of your retirement accounts.
Are you affected?
If you own a retirement account and reach 70½ years old:
Generally, annual RMDs must be taken before December 31 of each year.1
Beginner’s exception: You can delay taking your first RMD to April 1 of the year following the year you turn 70½. But be mindful that you then would have to take two RMDs that year.
How to calculate your RMDs
What are your opportunities
The rules for retirement accounts are complicated. But, if handled well, they may help significantly alter how much you or your children receive. Here are examples of options that may be available to you:
- If you are 70½ or older and don’t need or want the income:
You can avoid having the RMD amount added to your taxable income for the year by opting to have up to $100,000 of your annual RMD made directly to a qualified charity. You do not receive a charitable deduction for the amount. However, you do get to choose the charity.
- If you have multiple traditional IRAs and want to simplify the accounting:
You can calculate the RMD for each IRA, but take all your RMDs from just one account. Different rules apply to other types of retirement accounts.
- If you need or want the income sooner rather than later:
Taking only the RMD is usually the most tax-efficient choice; as the IRA owner, however, you can always withdraw more if it makes sense to do so based on your individual circumstances.
How to take your RMDs
You, your advisor or some other authorized representative acting on your behalf must contact the administrator of your retirement plan to indicate how much you want distributed for the year. While you may be able to rely on your advisors to handle the logistics around your RMDs, it’s always best for you to know precisely whom to contact and to make sure the distribution is made. Speak with your J.P. Morgan representative for details.
RMDS: What path should you take?
Generally, you will want to maximize any opportunities to delay starting and then “stretch out” taking your required minimum distributions as long as possible, allowing them time to grow tax-free. Your options will depend on a variety of factors, including possible limitations imposed by your retirement plan or IRA documents. Here is a general summary.
We can help
Knowing your choices and understanding the rules can be complicated. Partner with your J.P. Morgan advisor, who can help make sure you not only take your RMDs properly every year, but also make the most of your retirement accounts so that you may reach your financial goals.
1For Roth IRAs, an original owner has no RMD. For Qualified Retirement Plans, an original account owner might be able to start RMDs later than age 70½ if he/she is currently working at the employer sponsor of the plan, the plan documents permit the delay, and the owner is not a 5% owner of the employer.
3An original account owner might be able to start RMDs later than age 70½ if he/she is currently working at the employer-sponsor of the plan, the plan documents permit the delay, and the owner is not a 5% or more owner of the employer. If you qualify, you must begin taking distributions by April 1 of the year following the later of the year you turn 70½ or the year you retire.