What Exactly Are RMDs?
According to JPMorgan Chase, employees who limit their retirement account withdrawals to RMDs could be making a mistake.
A required minimum distribution is a minimum amount the government requires most retirees to withdraw from their tax-advantaged retirement accounts at a particular age. In 2020, the RMD age was raised from 70 and a half to 72 years old.
While most employer-sponsored retirement plans and individual retirement accounts are subject to RMDs, owners of Roth IRAs are exempt from taking minimum annual distributions. But here are the retirement accounts that come with required minimum distributions:
- SEP-IRAs
- Traditional IRAs
- SIMPLE IRAs
- Profit-sharing plans
- 401(k)s
- 403(b)s
- 457(b)s
- Other defined contribution plans
You can calculate an RMD by dividing your account balance, as of December 31st of the previous year, by your current life expectancy factor, which is a number set by the IRS.
For instance, a 75-year-old has a life expectancy factor of 22.9. If they have $250,000 in a retirement account, they would need to withdraw at least $10,917 from their account that year.
…Continue reading on the next page to see what mistakes to avoid.
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