Just like any Traditional IRA or Traditional 401(k), the required minimum distributions are minimum withdrawal amounts that must be taken annually by the plan or IRA owner. Tax rules for Self-Directed IRAs are identical.
What are Required Minimum Distributions?
RMDs ensure that money and income, which have long been tax-deferred inside of Traditional IRAs or 401(k)s, are eventually paid in taxes to the government.
RMDs are minimum withdrawal amounts that must be taken annually by the plan or IRA owner. RMDs must begin within the year the plan owner turns 72 or in the year of retirement if he or she retires after that age. In the past, the RMD age was 70 and 1/2 for those who reached it before 2020.
IRA and Retirement plan participants and 401(k) owners are responsible for taking the correct amount of RMDs on time every year or you may face stiff penalties. Roth IRA and Roth 401(k) owners do not have to take RMDs, as you already paid taxes on those contributed dollars.
If you need assistance, calculating your RMDs is a collaborative effort between you and Rocket Dollar.
When are RMDs due? Are there any penalties?
- Your first RMD at 72 by December 31st of that year, then April 1 for years after that.
- An inherited IRA owner must take a distribution by the year after the owner's death on December 31st.
- If you are late to take an RMD, you could be subject to penalties from the IRS.
What’s the easiest way to complete my current RMD requirement?
The easiest way to complete your RMD, is to do it at your other IRA provider for your stock and bonds. (Fidelity, Vanguard, Charles Schwab). If you have an IRA at one of these providers.
For example, Chuck has four IRAs, three Pre-tax Traditional IRAs and one Post Tax Roth IRA.
- Fidelity Traditional IRA = $2000 RM Distributution needed
- Vanguard Traditional IRA = $3000 RM Distribution needed
- Charles Schwab Roth IRA = $0 RMDs are never needed for Roths.
- Rocket Dollar Traditional IRA = $5000 RM Distribution needed
To satisfy Chuck’s RMD requirements, he tells Fidelity to distribute $10,000. This finishes his IRS responsibility for RMDs, and Chuck sends emails to Vanguard and Rocket Dollar confirming his RMD responsibility is finished.
IRS RMD Worksheet: See PDF below or the linked article here
- Calculate the value of all your IRAs, with the values of the previous year. December 31st. So if you are calculating your RMDs on December 10th, 2022, look back to the Fair Market Value (FMV) you provided for December 31st, 2021.
- Distribution period from the table (Table III) for your age on your birthday this year.
- Line 1 is divided by the number entered on line 2. This is your required minimum distribution for this year from this IRA.
- Repeat steps 1 through 3 for each of your (non-inherited) IRAs.
Table III Life expectancy
How do I complete my RMD with my IRA custodian?
The deadline to take the distribution is December 31st of the RMD year, or April 1st of the next year if you turned 72 on or before 12/31/2022. Using the 2021 12/31 year-end value of ALL your pre-tax IRAs, please keep in mind your IRA custodian may assist you with calculating RMD but will not offer tax advice.
Once the amount is calculated, TELL OUR SUPPORT TEAM by email the amount (if any) you will be withdrawing from this IRA. You can decide which IRA you take the RMD from - it does not have to be this IRA. If you are not withdrawing anything, email our team to confirm you are taking care of your RMD from another IRA.
Funds MUST be available in your IRA cash account with your custodian, you may need to liquidate a portion of your investment held in your IRA name (if cash needed is not available in your account) and send those funds from your Investment back to IRA acct.
Once needed funds are available in your IRA account, our support team will prefill the IRA Custodian's distribution form to send RMD funds to you, the IRA account holder.
You can find additional information on the IRS website here:https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-required-minimum-distributions-rmds and by reaching out to a qualified tax advisor
I have an IRA LLC account, can I send myself the funds?
(DO NOT send the funds from your IRA LLC directly to yourself). The IRA Custodian, MUST be the party that sends the RMD to you, the IRA account holder. Sending yourself funds may not properly be categorized as a distribution and could cause errors on your taxes.
- RMD Worksheet.pdf200 KB