An individual retirement account, more commonly referred to as an IRA, is a good place to save for your retirement. Once you reach a certain age, though, you’ll have to start taking a minimum amount out of your account each year, called a required minimum distribution (RMD). The RMD table the IRS provides can help you figure out your required minimum distribution.
This guide will take you through how to use the RMD table, explain what it means for your retirement and discuss what happens if don’t hit the required minimum distribution for a given year. It will also explain the exact purpose of required minimum distributions.
IRA Required Minimum Distribution Table 2018
You must take out your first required minimum distribution by April 1 of the year after you turn 70½. For all subsequent years, you must take the money out of your accounts by December 31.
Here is the RMD table for 2018, based on data from the IRS:
|IRA Required Minimum Distribution|
|115 and over||1.9|
How to Calculate Your RMD
So, how can you figure out how much you need to take out based on the above table? Here’s how to do the calculation:
- Figure out the balance of your IRA account.
- Find your age on the table and note the distribution period number.
- Divide the total balance of your account by the distribution period. This is your required minimum distribution.
Make sure you do this for all of the traditional IRAs you have in your name. Once you add up all of the required minimum distributions for each of your accounts, you can take that total amount out of any of your IRAs. You don’t have to take the minimum distribution from each account as long as the total money you withdraw adds up.
This only applies to traditional IRAs, not Roth IRAs. Note that the above RMD table also doesn’t apply to you if you have a spouse who is the sole beneficiary of your IRA and who is more than 10 years younger than you.
Why Do RMDs Exist?
You may find yourself wondering why there is a required minimum distribution for your IRA. After all, it’s your money, so why can’t you take it out of your account at your own pace? The answer to this question is the same as the answer to many questions when it comes to financial matters: taxes.
You don’t pay taxes on the money in your IRA when you put it in. Instead, you pay taxes when you withdraw the funds in retirement. The money will be taxed according to your current tax bracket. This is beneficial if you are in a lower tax bracket in retirement than you were when you first earned the money and were probably earning a much higher total income.
If you were to leave all of your money in your IRA, it would eventually become eligible to be passed on as inheritance and perhaps end up un-taxed. The required minimum distribution forces you to take out some money while it can still be taxed.
What If You Don’t Hit the Minimum Distribution?
You will have to pay a fairly significant tax penalty if you do not take the minimum distribution. You’ll pay a 50% tax rate on required money that was not withdrawn.
However, there are steps you can take to fix a missed RMD deadline. The first step is to correct your mistake by taking the RMD amount that you previously failed to take. Next, you need to notify the IRS of your mistake by filing IRS Form 5329 and attaching a letter explaining why you failed to take the required withdrawal. The IRS will consider waiving the penalty tax due to a “reasonable error,” which may include illness, a change in address or faulty advice on your distribution.
The Bottom Line
If you have an IRA, you may be trying to delay taking money out of it for as long as you can so that your investments can keep earning interest. You’ll have to start taking money out at age 70 though, due to required minimum distributions. These require you to take a certain percentage of your money out of your IRA each year.
The RMD table, shown above, lists the minimum required distribution for your age. Required minimum distributions exist to prevent retirees from never taking the money out, thus allowing the funds to pass, un-taxed, as inheritance.
- A financial advisor can help you get ready for retirement regardless of whether an IRA is part of your plan. SmartAsset’s free financial advisor matching service can pair you with an advisor in your area based on your needs. You’ll answer a short series of questions about your financial situation and goals. Then the program matches you with up to three financial advisors nearby. We fully vet all of our financial advisors and make sure they are free of disclosures.
- In addition to your IRA, remember that you’ll also be getting money from Social Security when you retire. To find out how much you can expect to receive from the government each year, use our Social Security calculator.
- If you decide to hire a financial advisor, you’ll have to decide between an asset manager and a wealth manager. An asset manager will mange your investments and not think about your financial life more broadly. A wealth manager can help with things like retirement planning, taxes and estate planning. Just make sure your advisor can perform the services you need.
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