Have a missed RMD? Here, we’ll talk about who needs to take RMDs. We’ll also discuss which accounts they need to be taken from and when they need to be taken by. Finally, we’ll tell you what you need to do if you missed your RMD.
What is an RMD?
An RMD, or required minimum distribution, is the amount you must start distributing from your retirement account when you reach a certain age. Any plan that’s funded with pre-tax money (tax-deferred) is subject to the RMD rules. You can’t skip out on taxes forever, so the IRS requires you to start withdrawing these funds so they can get their taxes!
Who is Subject to RMDs?
Do you know if you are supposed to take a required distribution from your retirement account? The simple answer is, if you are age 70½ (or older) and have any type of traditional retirement plan, you must take RMD(s). This goes for any traditional account you have contributed to (which we will discuss in more detail below).
Which Accounts are Subject to RMDs?
As we just stated, almost all traditional retirement plans are subject to minimum distributions once you reach age 70½ . These include all qualified retirement plans, such as 401(k)s, 403(b)s and 457 plans. These also include the different types of IRAs (traditional, self-directed, SEP and SIMPLE IRAs). Roth-type plans are not subject to RMDs. However, if you are still working, you can delay RMDs until after you retire for that particular plan. Although, you must still settle RMDs for all other retirement plans. Note: If you are at least a 5% business owner in your current plan, you cannot delay your RMD.
When Must I Take my RMD(s)?
Typically, RMDs are required by the end of the year. The only difference is during the year in which you turn age 70½. There is a grace period for taking your first required distribution. You have until April 1 of the year following the year you turn 70½ to make the withdrawal. For example, if you turned 70½ in 2018, you have until April 1, 2019 to take your RMD. You will still need to take your next RMD by December 31 of this year (and subsequent years).
What if I Have a Missed RMD?
Since not everyone is familiar with the RMD rules, you might have missed an RMD. The penalty is severe for missing these withdrawals. You will be hit with a 50% penalty on the amount which should’ve been distributed. This penalty will occur every year until you fix the mistake! So, it’s best to catch a missed RMD before the penalties add up.
If you did miss an RMD, whether you forgot entirely or missed an old plan that should’ve been factored in, it’s fairly simple to rectify the mistake. You cannot take the RMD retroactively. If the new year has started, you can’t go back and say you took your RMD for the previous year. As soon as you figure out that you missed your RMD, calculate the amount you should have withdrawn, and take that amount immediately from the appropriate plan(s). If you have multiple IRAs, you can take your RMD from one or all. If you have multiple qualified plans (i.e. 401(k) plans), you must take an RMD from each account.
You will then have to report that amount on IRS Form 5329. Basically, you’re telling the IRS that you failed to take your RMD amount and here it is. You will attach a statement that you corrected the omission as soon as you realized it, along with an explanation. A simple reason is that you didn’t realize you had to take RMDs or that you had health issues that prevented you from taking the amount in a timely matter, etc. Generally, the IRS will waive the penalty if you are forthcoming and correct the mistake as soon as possible.
You always hear bad things about the IRS, but in the case of a missed RMD, they are pretty lenient about penalizing you. The key is to make sure you satisfy the requirements as soon as you realize you made the mistake. Failure to do so will leave you with bad thoughts about the IRS when you see that penalty.
It’s a good practice to know all of your retirement accounts, especially once it’s time to take RMDs. Preferably, old accounts should be rolled over into current accounts, that way you don’t have several old plans you need to consider for RMDs. Having one or two account balances is much easier to take care of than seven or eight.
RMDs are quite tricky, especially figuring out how much you owe and where they must be taken from. It’s always best to talk with a tax specialist who can walk you through the process (or do it for you entirely).