Required Minimum Distribution Issues Worth Reviewing
A plain-English tour of the RMD planning questions that come up most often, with pointers to where the current rules live.
Account owners approaching required distributions, and anyone who has inherited a retirement account and needs to understand the planning issues involved.
The rules around required distributions involve several moving pieces — which accounts count, how they can be combined, what happens the first year — and getting one piece wrong can be costly to fix after the fact.
- Which accounts are subject to required distributions
- How aggregation rules work across multiple accounts
- The first-year timing choice and why it matters
- Withholding options on a distribution
- Taking a distribution in kind rather than in cash
- Qualified charitable distributions as a topic to raise with your team
- How inherited accounts follow different rules
- Correcting a missed distribution
- How distributions interact with Medicare income look-back
- 1
Confirm which of your accounts are actually subject to RMDs
Traditional IRAs, SEP and SIMPLE IRAs, and most employer-sponsored retirement plans are generally subject to required distribution rules, while Roth IRAs owned by the original account holder generally are not. Some employer plans have exceptions for account owners still working for that employer. Confirm exactly which of your accounts are subject to the rule and which are not at irs.gov, since treating them all the same can lead to an unnecessary distribution or a missed one.
Questions to answer- · Which of my specific accounts are subject to required distributions?
- · Does the still-working exception apply to any of my employer plan accounts?
- · Are any of my accounts exempt from this requirement?
- 2
Understand how aggregation rules work across accounts
Some account types allow the total required amount to be calculated across all similar accounts and withdrawn from just one of them, while other account types require the distribution to come from each account individually. Mixing these up is a common and avoidable error. Confirm the current aggregation rules for each of your account types at irs.gov or with your tax preparer.
Questions to answer- · Which of my accounts can be aggregated, and which cannot?
- · Am I currently taking distributions correctly across my accounts?
- · Would consolidating accounts simplify this calculation going forward?
7 more sections in the full guide.
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- Think through the first-year timing choice
The first required distribution generally allows for a delayed deadline into the following year, but choosing that option means two distributions could land in the same tax year, potentially pushing you into a higher bracket.
Includes: “What are my two options for taking my first required distribution?”
- Decide on withholding before the distribution happens
Required distributions can have federal (and sometimes state) tax withheld at the time of distribution, or you can elect not to withhold and address the tax liability separately.
Includes: “What withholding does my custodian apply by default?”
- Consider whether an in-kind distribution makes sense
Rather than selling an investment and distributing cash, some custodians allow a required distribution to be satisfied by transferring shares directly out of the account, which can be useful depending on your view of a particular holding.
Includes: “Does my custodian offer in-kind distributions?”
- Ask your team about qualified charitable distributions
A qualified charitable distribution allows eligible IRA owners to direct some or all of a required distribution straight to a qualifying charity, which can affect how that amount is treated for tax purposes compared to a regular distribution followed by a separate donation.
Includes: “Do I meet the eligibility conditions for a qualified charitable distribution?”
- Recognize that inherited accounts follow different rules
Distribution rules for an inherited retirement account depend on your relationship to the original owner and when they passed away, and these rules have changed in recent years.
Includes: “What is my relationship to the original account owner, and which rules apply to me?”
- Know how to correct a missed distribution
If a required distribution is missed or taken in an amount less than required, there is a correction process, and penalties for missed distributions can potentially be reduced or waived if the shortfall is corrected promptly and the failure is properly explained.
Includes: “Have I missed a distribution, or taken less than required, in any year?”
- Coordinate distributions with the Medicare income look-back
Required distributions count as income in the year they're taken, and that income can factor into the look-back used to determine Medicare Part B and Part D premium adjustments in a later year.
Includes: “How will this year's required distribution affect a future year's Medicare premiums?”
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Official sources
Rules change. Confirm anything that affects a decision against the current official source.
Where this fits in our work
This guide accompanies our retirement income planning work. Joe Donti meets with Arizona households by appointment — in the Scottsdale office, by phone, or on Zoom.
Related reading
This guide is general education and is not individualized investment, tax, legal, Medicare, or insurance advice, and it is not a recommendation to buy or sell any product or security. Investing involves risk, including possible loss of principal. Insurance and annuity guarantees depend on the claims-paying ability of the issuing carrier. Rules and figures change — confirm current details with the official sources above and with your own tax, legal, or insurance professional.