RMDs—What You Need To Know

18075613_sChristine, a summer resident, recently e-mailed me. She wrote, “Dear Jeff, I am a summer resident and your column is the first one I read when I receive my Friday Enterprise. I have learned so much from your articles. You may have covered RMDs in the months I am not here so I wondered if you could address it.”
Christine explained that she will be 70 next July and knows that she will soon need to take her first Required Minimum Distribution (RMD). She asked me for some help—specifically, she wants to know how to calculate RMDs and when to take them.
Okay Christine, let’s give it a shot.
As the name suggests, a Required Minimum Distribution is a yearly distribution that must be taken from certain types of retirement accounts. The minimum amount required to be taken, generally, is based on both the December 31 account value from the year prior and the Uniform Life Expectancy Table, which can be found either on my website or on the IRS’s website. The RMD is calculated by dividing the year-end value by the applicable life expectancy of the account owner. (If, however, an individual has a spouse who is 10 years younger than him or her, a different table is used.)
Generally, folks must begin taking their RMDs by April 1 of the year after they reach age 70 1/2. Every year thereafter, an RMD must be taken by year-end, December 31.
If Christine turns 70 in July 2015, she’ll turn age 70 1/2 in January 2016. So technically, Christine is not required to take her first RMD until April 1 of 2017. However, if Christine decides to wait until April 2017 to take her first RMD, she will need to take two RMDs in the same calendar year. This is because her second RMD would need to be taken by the end of 2017. Therefore, Christine should estimate her projected taxable income for 2017 because by taking two RMDs in one year, she may be pushed into a higher tax bracket, thereby resulting in an unfavorable tax consequence. If that is the case, Christine may want to take her first RMD in 2016 and her second by the end of 2017.
Another factor to consider with respect to RMDs is how to take them. An individual’s Required Minimum Distribution is calculated by using the year-end total of all of his or her IRAs, including SEP and SIMPLE IRAs. However, the entire distribution can be taken from any one or a combination of the IRA accounts. But beware, there are some potential traps to avoid. Spouses must calculate their own RMDs separately. Each spouse must take their RMD from their own IRA account(s). Also, should a person own an inherited IRA, as well as their own, then generally, RMDs must be taken from each. However, you can combine the RMDs from inherited accounts when they are each inherited from the same original IRA account owner.
Generally, distributions from employer plans, such as 401(k)s, also must be calculated on each plan and withdrawn separately from each one. Employer plans cannot be aggregated—with one exception—403(b) accounts can be aggregated using the same rules for IRAs as noted above. Their combined RMDs can be taken from any one or a combination of multiple 403(b) accounts.
Under no circumstances can an RMD from one type of plan be satisfied with a distribution from a different type of plan. In other words, a 403(b) RMD cannot be taken from an IRA. Likewise, an IRA RMD cannot be taken from a 401(k), or any other type of plan other than an IRA.
Generally, there are no Required Minimum Distributions for Roth IRAs. However, an inherited Roth IRA does have one. Such an RMD can be calculated by aggregating the year-end account value with other inherited Roth IRAs following the same inherited IRA rules as stated above.
A point of caution on your RMD; there is a 50 percent penalty on any amount that should be taken and is not taken. Furthermore, if the RMD is taken out of the wrong type of account, it is treated as though it was not taken at all.
Look, I know this can be somewhat confusing. If you have questions calculating your RMDs or concerns about taking  
So, Christine, I hope this helps. Thank you for e-mailing me and letting me know what you are interested in learning about.
Cutter Family Finance readers, I love to get questions like Christine’s. Keep them coming! And Christine, thanks for your nice words. Questions like yours and answers like mine help others. And frankly, at the end of the day isn’t helping others what life’s journey is all about?
Be vigilant and stay alert, because you deserve more.