8 Things Boomers Must Know About RMDs From IRAs
According to the experts at Kiplinger, It’s a watershed year for the baby boom generation. In 2016, the first of the boomers — those born in the first half of 1946 — will reach age 70 1⁄2. The present from Uncle Sam is a demand that they begin withdrawing funds from their traditional individual retirement accounts and employer-sponsored retirement plans, such as 401(k)s. (Many boomers were in their mid thirties when IRAs first became widely available.) If you’re among those at the head of this parade, you need to know the ins and outs of required minimum distributions (RMDs). If your parents or grandparents are the ones moving into RMD-land, do them a favor and share this slide show with them.
If your 70th birthday falls between January 1 and June 30, you’ll turn 70 1⁄2 in 2016 and you must take your first required distribution from your traditional IRAs. If your birthday is July 1 or later, your first RMD will come in 2017. Generally, you must take RMDs by December 31, but first-timers can wait to take their initial payout until as late as April 1 of the following year. So if you reach 70 1⁄2 in 2016, you can postpone your first withdrawal until 2017. But doing so means you’ll have to take two distributions in 2017. Be sure to check whether that could push you into a higher tax bracket, cause more of your Social Security benefits to be taxed or subject you to the Medicare high-income surcharge a couple of years later.
Note: The RMD rules do not apply to original owners of Roth IRAs. Because the government doesn’t get to tax Roth withdrawals, it doesn’t care whether you ever withdraw your money (although your heirs must take withdrawals).
Pinpoint How Much You Must Withdraw
You don’t need a computer or a degree in accounting to figure out how much you must withdraw from your IRAs. First, find the 2015 year-end balance of every traditional IRA you own. Second, add them together. Third, divide the total by a factor provided by the IRS that’s based on your age and life expectancy. For most IRA owners who turn 70 1⁄2 in 2016, the divisor is 27.4. So, for example, if your IRAs held a total of $500,000 at the end of 2015, your RMD for 2016 is $18,248. (If you don’t want to do the math, use our calculator. IRA sponsors will be happy to help, too.) An IRA owner whose spouse is more than 10 years younger and the sole beneficiary of the account must use a different, larger factor. You’ll find the right number in Table II of IRS Publication 590-B.
Once you know how much you must withdraw from your IRAs, you can choose which accounts to tap. You can withdraw the total RMD from a single IRA or spread the withdrawal over several years.
Slightly Different Rules Apply for 401(k)s