According to the IRS, if you’re age 70 ½, you might need to take what’s called a “Required Minimum Distribution”. This is also known by its initials – RMD. Once you turn 70 ½, the IRS requires you to start taking an RMD from Traditional IRAs, SIMPLE IRAs and SEP IRAs. Likewise, if you have a 401(k) and you’re no longer working, this applies to you too.
There are some exceptions: If you have a Roth IRA, you don’t have to take the required minimum distribution. Similarly, if you have a 401(k) and are still working, you generally don’t have to take an RMD until you retire.
However, there are special circumstances where you might have to take a required minimum distribution even though you have NOT turned 70 ½. For instance, if you’ve inherited an IRA from someone else (it doesn’t matter if it’s a Roth or traditional IRA) — in this case, you may have to take an RMD even though you haven’t turned 70 ½.
The penalty can be steep if you don’t take the RMD — you may face a 50% penalty, so don’t procrastinate.
As you can see, the rules can be confusing. If you’re unsure whether or not an RMD affects you, it’s best to check with the investment firm that holds your retirement accounts. The key is to stay on top of this every year so you avoid paying penalties.
The information on this page is provided for educational purposes only and is not tax, legal, financial planning or investment advice. Neither the information nor any opinion expressed in this section constitutes an offer to buy or sell any securities or advisory products. The information provided is general and is not information reasonably sufficient upon which to base an investment decision and should not be considered a recommendation to purchase or sell any particular security. You should not regard this information as a substitute for the exercise of your own judgment. Investing involves risk.