Generally, a required minimum distribution (“RMD”) is the minimum amount that individuals must withdraw from their retirement account annually once they reach age 70 ½. Some participants in qualified plans can wait until the year they actually retire to take their RMD, but not if they own more than 5% of the business sponsoring the plan. Individuals who do not take any distributions, or if the distributions are not large enough, may have to pay a 50% excise tax on the amount not distributed as required.
When a participant in a retirement plan or an IRA account owner dies before RMDs have begun, different RMD rules apply to the beneficiary of the retirement plan account or IRA. Generally, the entire amount of the benefit must be distributed to the beneficiary either:
- within 5 years of the owner’s death, or
- over the beneficiary’s life starting no later than one year following the owner’s death.