Do I Need to Take a Required Minimum Distribution?

Required Minimum Distributions

Written by: Nicole Gobel, CPA

In every industry there are acronyms. In the investment advisory and tax planning world, RMD or MRD is often used. Both stand for Required Minimum Distribution. This is the minimum amount one must take as a distribution from various retirement accounts each tax year and is specific to each individual and each type of account.

In this article we will discuss:

  • Who and what types of accounts are subject to the RMD rule?
  • How are Required Minimum Distributions calculated?
  • What are your options for withdrawals?


Required Minimum Distributions

Most taxpayers will need to receive Required Minimum Distributions(RMDs) at some point during their lifetime. The most widespread type of RMD is related to individuals who are over age 72. The SECURE Act changed this rule as previously distributions began when an individual reached 70 ½ years of age.

RMD Age = 72


All retirement accounts with pre-tax contributions are subject to this rule for the individual who made the contributions. This includes Traditional or Rollover IRAs, employer retirement plans such as 401(k)s and 403(b)s, as well as SEP and Simple IRAs. Basically, if you received a tax benefit or deduction by contributing the funds the IRS wants you to start paying tax on those amounts at 72 in an attempt to recoup the funds before you pass away. Roth 401(k)s are also subject to RMDs, however, Roth IRAs are not. This is a great reason to roll over any Roth 401(k) balances to a Roth IRA upon retirement.

There are some exceptions to the rules around employer plans. If you’re still working at 72 you will typically not need to withdraw funds until the year you retire. However, if you own more than 5% of the business you will need to take RMD while you’re still working.

Although RMD is an attempt by the government to receive their taxes during your lifetime it doesn’t always work out that way. Upon the account owner’s passing if the account is left to a surviving spouse they can roll the funds into their own IRA and continue to follow the RMD rules as if they had been the original account owner.

However, if a non-spouse is the beneficiary on a retirement account there is a different set of rules. For those inherited IRAs received from a decedent prior to January 1, 2020 they still have the ability to take distributions over their lifetime. For anyone receiving an inherited IRA since the SECURE Act they must withdraw the entire balance by the end of the 10th year beginning with the year after the decedent passed. This provides for some flexibility around payments during that 10-year period but is meant to accelerate taxes paid vs. allowing a beneficiary to stretch the distributions over their lifetime. In both cases both Traditional and Roth retirement accounts are subject to RMD for beneficiaries.

There are a few exceptions to the new 10-year rule for those considered eligible designated beneficiaries or EDBs. This includes the exception for spouses noted earlier but also applies to children who are not yet majority (typically 18), those who are disabled or chronically ill, as well as beneficiaries who are not more than 10 years younger than the deceased.


How Much Do I Need to Withdraw?

The amount of your required minimum distribution is dependent on a few items. First, you need to have the December 31st balance of the account from the previous year. This applies across all types of RMDs. Next, you need to locate the right life expectancy table that applies to your situation that provides the divisor to apply against the account balance. These tables were updated for 2022 allowing for slightly lower distributions due to longer life expectancies.

If you are taking a distribution from your own account, you can use the Uniform Life Table. As an example, if you are turning 72 this year and your account balance as of December 31, 2021, was $500,000 you would use 27.4 as your divisor and would need to withdraw $18,248 from your account this year. Next year’s distribution would be based on the December 31, 2022, balance of the account divided by 26.5 (the divisor for age 73).

There is an exception to using the Uniform Life Table if your spouse is your sole beneficiary and they are more than 10 years younger than you. In that case you can use the Joint Life Expectancy Table. Using the same example if you were 72 this year but your spouse was only 60 the divisor would be 28.8 vs. 27.4 and your RMD would be reduced to $17,361.

As discussed above there is a separate calculation for inherited IRAs. Both Traditional and Roth IRAs will be subject to RMDs but the Single Life Expectancy Table is used for anyone who had received the account by December 31, 2019. The divisor is determined based on the age of the beneficiary in the year after the decedent passed, which is the first year that RMD will be required for the beneficiary. Then each year this divisor is decreased by 1. Using this example if you inherited an IRA worth $500,000 and at age 50 your divisor would have been 36.2. Therefore, you needed to withdraw $13,812 in the first year. The next year you would divide the year-end balance by 35.2.

Since the RMD tables were changed this year there is a one-time opportunity for beneficiaries receiving lifetime distributions to go back to the new table and determine what the divisor would have been at that time. This new divisor would be reduced by 1 for each year you have had the account.

As discussed earlier any inherited IRAs or Roth IRAs that are subject to the new SECURE Act rules must be fully withdrawn by the end of the 10th year after the year in which the decedent passed. There is no requirement to take annual distributions, but the account must be fully depleted by that deadline.

What Are My Options for Withdrawals and Consequences if Not Taken?

Those individuals who are just turning 72 have a one-time option to defer their first RMD to the following year. However, they would need to take the first distribution by April 1st of the following year and would still have to take a second distribution in the same tax year. This only makes sense if your tax bracket is expected to significantly decline in the 2nd year, for example upon retirement.

If you fail to take the appropriate amount from your account, you can be subject to a hefty penalty valued at 50% of the RMD amount so it is important to track this each year. We communicate to our clients each year what amount they need to withdraw and also counsel them on tax withholding. Many individuals prefer to have taxes withheld from their distribution, so they are not forced to make estimated tax payments or have a large balance due upon filing their returns. Ensure you are working with your advisor or tax professional to plan appropriately.

If you have multiple Traditional IRAs, you can choose to take the total RMD from one or more accounts. However, if you have funds in separate employer retirement plans or other types of IRAs such as a SEP IRA you will be required to withdraw the specified amount from each account separately. Many employer retirement plans also require 20% Federal tax withholding and do not provide the same flexibility as an IRA around tax planning.


In the event you are required to take more distributions than you need for cash flow purposes you can also choose to donate a portion to charity. Qualified Charitable Distributions or QCDs allow you to send payments directly from your IRA to charities of your choosing. Although the total RMD amount will be captured on your 1099R Tax Form you should advise your tax preparer of the donation as your taxable distribution should be reduced by this amount for Federal tax purposes. This is a great tool, especially for those individuals who are contributing to charity but not benefiting from the deduction if they are no longer itemizing on their tax returns.

There are many rules to navigate around Required Minimum Distributions. Ensure you are working with an investment advisor and tax professional that understands your situation and can advise accordingly. If you have any questions about RMDs, inherited accounts or Qualified Charitable Distributions do not hesitate to contact our team for a discussion.

Bouchey Financial Group has local offices in Saratoga Springs and Troy, NY.

Remote offices: Lexington, KY and Palm Beach County, FL

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