IRAs: FAQs about RMDs

November 13, 2014 3:50 PM
By Brian Dobbis

Investors who are required to take required minimum distributions (RMDs) from their IRAs generally must do so by December 31. Here are some things they should know.


I’ve just returned from a week on the road, giving presentations to financial advisors. One of the most consistent topics of discussion focused on required minimum distributions from IRAs. RMDs are a highly specialized area of retirement planning, and due care should be taken to familiarize oneself with the maze of rules that apply. The consequences for missing an RMD are severe: a 50% penalty surtax assessed on the amount of the RMD that should have been taken.

RMDs are generally required the year an account owner turns 70½ years old. A special rule allows account owners to defer their initial RMD until April 1 of the year following the year the investor turns 70½. So, if an IRA account owner turns 70½ in 2014, his or her first RMD can be delayed until April 1, 2015. However, investors who choose that option will be required to take two minimum distributions in 2015: their delayed 2014 distribution and their 2015 distribution. Although delaying a distribution may have some benefits, taking two distributions in the same tax year could bump up an investor’s income, pushing them into a higher marginal tax bracket.

With the approaching deadline for taking required distributions, I thought it might be useful share five of the questions I heard most frequently. 

Q. Are all traditional IRA investors subject to RMDs at 70½?
Yes. The rules are straightforward. An RMD is required in the year an account owner reaches 70½, with the lone exception of the first year, when an account owner can defer the RMD to April 1 of the following year. SEP and SIMPLE IRA account owners are also subject to RMDs. 

Tip:  Roth IRAs are not subject to lifetime RMDs.

Q. Do 401(k) plans follow the same RMD rules as traditional IRAs?
  No. Unlike a traditional IRA, 401(k) participants who do not own more than 5% of their current employer’s plan can defer their RMD until the year they turn 70½ or the year they retire, whichever is later. On the other hand, a participant who owns 5% or more is required to take an RMD at 70½, regardless of work status.

Q. How are RMDs determined if an account owner has multiple IRAs?
The rules require an account owner to calculate the RMD amount for each individual (separate) IRA (including SEP IRAs and SIMPLE IRAs). However, the total amount may be taken from any one or more IRAs. (Note: Generally, if you own more than one 401(k) plan account, an RMD must be calculated and taken separately from each plan.)

Tip: To make distributions easier, consider consolidating or rolling over multiple IRAs into a single IRA account.1

Q. Who is responsible for satisfying the RMD in the year the owner of a traditional IRA passes away (assuming he/she was a least 70½)?
The beneficiaries are responsible for satisfying the minimum distribution, assuming the account owner passed away before taking the RMD in the year he died.

Q.  Does Lord Abbett offer assistance in calculating lifetime minimum distributions?
A. Yes. The Resource section of our website has several retirement-related calculators, including one that answers the question: “What is my projected required minimum distribution (RMD)?” Readers can find more detailed information in my article, “The ABCs of RMDs.”

Brian Dobbis, QPFC, QPA, QKA, TGPC, serves as Lord Abbett’s IRA Product Manager.


1 Consolidating and/or rolling over assets may result in the assessment of transaction costs, charges, and other administrative fees.


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