What to know about required minimum distributions (RMDs)
The Internal Revenue Code (IRC) requires that IRA owners and participants in qualified employer sponsored retirement plans (QRPs) such as 401(k)s, 403(b)s, and governmental 457(b)s must begin taking distributions annually from these accounts. These distributions are referred to as RMDs. Once you reach your required beginning date (RBD), you will begin taking RMDs from any Traditional, SEP, and SIMPLE IRAs that you have, as well as from any QRPs left at former employers. The RMD rules can be complex and excise taxes for not complying can be significant. The following helps explain the rules regarding RMDs.
The RBD is when the IRC requires you to begin taking distributions from any Traditional, SEP, and SIMPLE IRAs as well as any QRPs. Your RBD is April 1 following the year you turn age 73. (Note: This does not affect individuals who turned age 72 on or before Dec. 31, 2022)
No, you have the option to delay your first RMD but can take it sooner. Subsequent RMDs must be taken by December 31 of each year. You will owe ordinary income tax on the taxable portion of the distribution.
If you delay your first year’s distribution until the following year, you should note that you will have two distributions taxable in the same year—your first RMD and your second RMD, which must be taken by December 31.
The rules for when you must take RMDs from QRPs are the same as for IRAs. The RBD is April 1 following the year you reach age 73. Subsequent RMDs must be taken by December 31 of each year. (Note: This does not affect individuals who turned age 72 on or before Dec. 31, 2022)
Your RMD from the plan where you are employed can be delayed, if the plan allows and you are not a 5% or more owner of the company sponsoring the plan. However, the year you separate from service you will have an RMD due. Your RBD is April 1 the year following separation of service. Contact your plan administrator to see if you need to take an RMD.
If you delay your first year’s distribution until the following year, you should note that you will have two distributions taxable in the same year—your first RMD and your second RMD, which must be taken by December 31. Keep in mind that the first money distributed from the plan is considered the RMD and not eligible to be moved to another retirement account.
You may be subject to an IRS 25% excise tax for every dollar under-distributed. This may be reduced to 10%, if you correct the shortfall during a two-year correction window.
Yes. However, excess amounts taken will not offset the RMD amounts in future years.
Your IRA RMDs will be calculated from the sum of all your Traditional, SEP, and SIMPLE IRAs, and you may take your distribution from whichever Traditional, SEP, and SIMPLE IRA(s) you choose.
Generally, you cannot aggregate RMDs from all of your QRPs. You have to take RMDs from each QRP. Although, RMDs must be calculated separately for each 403(b) you have, the total RMD amount can be taken from any one or more of your 403(b) accounts.
You cannot satisfy your IRA RMD from your QRP or vice versa.
A beneficiary's options depend on if the IRA holder died before 2020 or after 2019. Not all non-spouse beneficiaries will be able to take RMDs based on their own life expectancies. Some will only have 10 years to empty the Inherited IRA but may have to take RMDs during the 10 year time frame. Please consult with your tax advisor for more information.
You cannot aggregate RMDs you take as an IRA owner with any RMDs you take as an IRA beneficiary.
You can aggregate RMDs from the same type of IRA you inherited, i.e., Traditional or Roth, as long as the deceased IRA owner is the same.
You cannot aggregate RMDs if the deceased owner is the same but the IRA type is different.
No. Once you buy an immediate annuity with IRA funds, the annuity is no longer part of the IRA held here, at Wells Fargo Advisors. That immediate annuity contract is held with the insurance carrier. All payments received under the annuity contract are considered RMDs, they are not eligible for rollover, and those distributions satisfy the RMD requirement for the annuity contract only. If you have other IRAs, the applicable RMDs for these accounts would need to be calculated separately from the immediate annuity payments. However, in the year that the annuity contract was purchased, the payments you receive in that year would count toward the applicable RMD amount for that specific year.
Your RMD is calculated by dividing your account balance at the end of the previous year by the appropriate life expectancy divisor from IRS Life Expectancy Tables.
Your Wells Fargo Advisors Financial Advisor can provide you with an estimate of your RMD. You should confirm any calculation with your tax advisor, since Wells Fargo Advisors does not provide tax or legal advice.
The value of your account as reflected on your end-of-year statement(s) should be used for your calculation. It is your responsibility to verify that the value of all assets in the IRA is accurately reflected on the statement.
Your prior year-end balance may need to be adjusted for certain transactions, such as pending rollovers or transfers. If you own an annuity in your IRA, it may be subject to the Entire Interest Regulation. Consult your tax advisor to verify the values that should be used in your calculation.
Most IRA owners and plan participants will use the Uniform Lifetime Table, except when a spouse is the sole primary beneficiary and is more than 10 years younger (11 or more) than the IRA owner or plan participant. In this case, the Joint Life Table is used. Those tables can be found in IRS Publication 590-B.
You will use the Uniform Lifetime Table during your lifetime.
No. Cash and/or securities can be distributed from your IRA to satisfy your RMD. Remember that these assets can be transferred to your Wells Fargo Advisors investment account(s).
Yes. There is no maximum age for making a IRA contributions, as long as you or your spouse if filing jointly, have earned income. Additionally, modified adjusted gross income (MAGI) phase-out limits apply to Roth IRAs.
Yes. However, you may be required to take your RMD before the transfer or rollover.
Yes, but it will be necessary to take your RMD prior to the conversion. You are not able to convert your RMD. An IRA conversion or rollover conversion from a QRP to a Roth IRA cannot be recharacterized.
Traditional IRA owners and Traditional Inherited IRA beneficiaries over 70 1/2 can distribute up to $105,000 per year, indexed for inflation, directly from their IRA to a 501(c)(3) nonprofit with no federal income tax consequences. You may distribute a one-time $53,000, indexed for inflation, QCD paid directly from your IRA to certain split-interest entities that qualify under the new rule. The $53,000 is part of the $105,000 QCD annual limit. If you make a deductible Traditional IRA contribution, the amount of your eligible QCD is reduced by the amount of any deductible contribution.
Please Note: This material has been prepared for informational purposes only and is not a solicitation or an offer to buy any security or instrument or to participate in any planning, trading or distribution strategy. The accuracy and completeness of this information is not guaranteed and is subject to change. It is based on current tax information and legislation as of December 2023. Since each investor’s situation is unique, you need to review your specific investment objectives, risk tolerance, and liquidity needs with your financial professional(s) before an appropriate planning, investment or distribution strategy can be selected. Also, since Wells Fargo Advisors does not provide tax or legal advice, investors need to consult with their own tax and legal advisors before taking any action that may have tax or legal consequences.
Please keep in mind that rolling over your qualified employer sponsored retirement plan (QRP) assets to an IRA is just one option. You generally have four options for your QRP distribution:
- Roll over your assets into an IRA
- Leave assets in your former QRP, if plan allows
- Move assets to your new/existing QRP, if plan allows
- Take a lump-sum distribution and pay the associated taxes
Each of these options has advantages and disadvantages and the one that is best depends on your individual circumstances. When considering rolling over assets from a QRP to an IRA, factors that should be considered and compared between the QRP and the IRA include fees and expenses, services offered, investment options, when penalty-free distributions are available, treatment of employer stock, when required minimum distributions begin and protection of assets from creditors and bankruptcy. Investing and maintaining assets in an IRA will generally involve higher costs than those associated with QRPs. You should consult with the plan administrator and a professional tax advisor before making any decisions regarding your retirement assets. Your Wells Fargo Advisors Financial Advisor can help educate you regarding your choices so you can decide which one makes the most sense for your specific situation. Before you make a decision, speak with your current retirement plan administrator, and tax professional before taking any action.
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