Most people know required minimum distributions (RMDs) begin at age 70 ½ (from most retirement accounts.) But it is not as easy as just looking at when you are 70 ½. The month you were born determines when you begin taking RMDs.
The Year You Turn 70 ½
First of all, you don’t begin taking RMDS when you actually turn 70 ½. Your required minimum distributions begin in the year you turn 70 ½. That varies from person to person based on the month they were born:
- People born between January and June begin RMDs the same year they turn 70.
- People born July through December begin taking RMDs they year they turn 71.
Second, your first required distribution doesn’t have to be made until April 1st of the year after you turn 70 ½. (The consequence for delaying until the following year is discussed in the next section.) This is called your required beginning date (RBD). Here is how this all works together.
Example 1: Wayne turns 70 on January 15, 2017. He will be 70 ½ on July 15, 2017. Wayne will have to take his first RMD in 2017. He can wait as late as April 1, 2018 to take his first RMD.
Example 2: Peggy turns 70 on August 3, 2017. Peggy will be 70 ½ on February 3, 2018. She will have to take her first RMD in 2018 but she can wait as late as April 1, 2019 to take her first RMD.
The consequence of delaying your first RMD to the following year is that you will have to take two RMDs in that year. If Wayne and Peggy delay their first RMDs until the following year, Wayne will have to take two RMDs in 2018, and Peggy will have to take two in 2019.
For most people, doubling up on income in one year doesn’t make sense from an income tax perspective.
RMDs and Rollovers
When you turn 70 ½, the is another rule that says you must take your RMD before rolling over any other funds in your retirement accounts. Here is a list of rollover transactions under this rule:
- 60-day rollovers. (You receive the funds payable to you and have 60 days to redeposit them in another retirement account.)
- Roth conversions.
- Any distribution from an employer plan (401(k), 403(b), pension, etc.), either a direct transfer or a check payable to the plan participant.
It doesn’t matter that you would have the option to wait until the end of the year or until April 1 of next year to take the RMD. The first money out is considered the RMD and the RMD cannot be rolled over. Your RMD must be paid out before moving funds out of an employer plan, before a Roth conversion, and before a 60-day rollover.
Note: For IRA accounts, you can transfer a RMD from one account to another. You can take the RMD later in the year from the new account.
Example 3: Wayne has funds in his employer’s 401(k) plan. He wants to move those funds to an IRA. Wayne will have to take his RMD from the 401(k) before he can move the remaining balance to an IRA.
Example 4: Wayne has funds in an IRA account. He wants to move those funds to a new IRA custodian. The funds will go to the new custodian via direct transfer. Wayne can’t access the funds. Wayne does not have to take his RMD before transferring his IRA to the new custodian. Finally, dying before your RBD (April 1 after turning 70 ½), means you passed before having to take any RMD.
Example 5: Angela turns 70 on May 28, 2017. She will be 70 ½ on November 28, 2017. She has a RMD for 2017. Angela takes half of her RMD in October 2017. Unfortunately, Angela dies on December 12, 2017. She no longer has an RMD for 2017. Although she already took half of her RMD, she died before her RBD. Her beneficiaries will not be required to take any further funds from the inherited IRA to satisfy Angela’s year of death RMD.