Some thoughts on Minimum Required Distributions (MRD)

There are two important ages - 59 1/2 and 70 1/2 - for investors who use IRA accounts or employer plans such as 401k's. At age 59 1/2 you will be able to start withdrawing from your retirement plans. IRA accounts will generally be the easiest to take distributions. You can take out any amount and it will be taxed as ordinary income.
 

Once you reach 70 1/2 the IRS requires you to start taking withdrawals from your retirement accounts. These distributions are called MRD's and apply to all of your retirement accounts including Traditional IRA's, Rollover IRA's, SEP Plans and 401k plans or 403b plans you may be using.

If you are still working and have active plans at work, you are not required to take distributions from these plans. You must however start taking withdrawals from your IRA's, even if you are working. So remember this distinction. 

Balances in your IRA's are added together to determine your minimum withdrawal, but you can select one IRA account to take the withdrawal.

You'll have until April 1st of the year following the calendar year you turn 70 1/2 to take the your first annual MRD, however you'll be taking two distributions that year, potentially paying more taxes. So most investors take their first MRD by Dec 31 of the year of their 70 1/2 birthday.
 

Taxation

Your MRD withdrawals will be taxed as ordinary income for the tax year in which they're taken. They are also subject to state and local taxes. Any non-deductible or after tax contributions are not taxed as they are withdrawn. These contributions should be tracked by IRS form 8606.  Each year, the withdrawals and any tax withholding from your IRA or employer plan will be reported on the IRS Form 1099-R.

The IRS will require your custodian to withold 10% of your MRD for prepayment of taxes.  You can elect not to have these taxes withheld or to have taxes withheld at a rate greater than 10%.

MRD Calculation

The IRS recently revised their life expectancy tables for the MRD and created the Uniform Lifetime Table. It is for single and married savers. 
 

A retirement saver will simply divide their account balances as of Dec 31 by the longevity factor on the Uniform Lifetime Table. This calculation will change each year based on the size of your account and the new life expectancy calculation.

Remember you'll do this calculation each year. Your IRA provider should be able to do these calculations easily and set up automatic distributions for you each year.
 

You can receive more information about MRG Rules from PEGG: Phone No.  (732) 346-2322)