401 (k) The required minimum distribution (RMD) now begins at age 72

401 (k) plans can help you save for retirement in a tax-convenient way. However, the Internal Revenue Service (IRS) requires that you start withdrawing money from their eligible retirement account when you reach the age of 72. These withdrawals are called the required minimum distribution (RMD).

Why should I take RMD?

In return for the tax benefits you enjoy by contributing to your 401 (k) plan, the IRS requests this amount of tax collection when you turn 72 years old. Years.

Typically, IRS collects taxes on profits in retirement accounts, such as 401 (k) s. However, if the assets in the Roth 401 (k) account are held for at least 5 years, the Roth 401 (k) fund is not taxed. Since taxes are being paid to the government, these distributions are not eligible for rollover on other accounts.

When should I start taking RMD?

Prior to the 2019 Protection Act, RMDs applied for employees who are over 70 years of age. However, the law raises the RMD age to 72 from 2020.

You may recall that the CARE Act, which was passed in March 2020 in response to the Covid-1 crisis, temporarily waived RMD for 2020. RMD has resumed for the planned year 2021 with the new extended age limit of increased2.

How much money do I have to raise?

RMDs are calculated based on your age and the balance of your account towards the end of the previous year. To determine the amount of distribution required, Betterment divides your previous account balance over the previous year by your Lifetime Factor (based on your age) from the Uniform Lifetime Table (shown below). As a note, if you have no balance at the end of the previous year, your first RMD will not occur until the following year.

Uniform Lifetime Table
Age of plan participant Life expectancy (in years)
70 27.4
71 26.5
72 25.6
73 24.7
74 23.8
75 22.9
76 22.0
77 21.2
78 20.3
79 19.5
80 18.7
81 17.9
82 17.1
83 16.3
84 15.5
85 14.8
86 14.1
87 13.4
88 12.7
89 12.0
.0 11.4
91 10.8
92 10.2
. 9.6
94 9.1
95 8.6
96 8.1
97 7.6
98 7.1
99 6.7
100 6.3
101 5.9
102 5.5
103 5.2
104 4.9
105 4.5
106 4.2
107 3.9
108 7.
109 3.4
110 3.1
111 2.9
112 2.6
113 2.4
114 2.1
115 and above 1.9

In addition, if you withdraw cash from your 401 (k) account in any year, you are subject to an RMD, and the amount of that distribution is equal to or greater than the amount of RMD, that distribution qualifies as a required amount and no additional distribution is required. No.

Does everyone over the age of 72 need to take RMD?

Doing 72 years in a given year does not mean that you have to take an RMD. Only those who are 72 years of age in a given year and meet any of the following criteria must take an RMD:

  • You have taken an RMD in previous years. If so, you must take an RMD by December 31 of each year.
  • You own more than 5% of the company sponsoring the 401 (k) plan. If so, you must take an RMD by December 31 of each year.
  • You left the company when you turned 2 years old (finished or retired). If so, the first RMD should not occur until April 1 of the following year (otherwise known as the required start date) but should occur consecutively by December 31 of each year.
    • Example: John turns 72 on June 1, 2021. John also decided to leave his company on August 1, 2021. He has been contributing continuously to his 401 (k) account for the last 5 years. The first RMD must be by April 1, 2022. The next RMD must be on December 31, 2022 and every year thereafter.
      • Note: This criterion means that if you meet the RMD age and are still working, you do not need to take RMD.
  • You are a beneficiary or alternative provider of an account holder who meets the above criteria.

What are the consequences of not taking RMD?

Failure to take an RMD for a specified year will result in a penalty of 50% of the amount not taken in time by the IRS.

How do I get an RMD?

Your employer will notify you that you may be subject to an RMD and provide you with an RMD form. You will need to fill out this form and return it to your employer for approval. Improvements will process RMD and delivery will be delivered via your preferred method (check or ACH).

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