Barbara is 71 years old. Last year was the first year she had to take required minimum distributions from her IRAs. She waited until April 1 of the year following the year she turned 70 ½ to withdraw the required amounts. When does she have to take RMDs this year? How should she plan strategically for amounts of the RMDs she doesn’t currently need?

Required Minimum Distributions (RMDs) are the minimum amounts that a retirement plan account owner has to withdraw annually upon reaching 70 ½ years of age or retiring. Those with IRAs or accounts from a business they own 5% or more of, must begin RMDs at age 70 ½, retired or not.

Although the first RMD may be delayed until April of the year following turning 70 ½, each annual RMD thereafter must be made prior to December 31 of that year.

Generally, a RMD is calculated by dividing the prior December 31 balance of that IRA or retirement plan account by a life expectancy factor published by the IRS in Tables in Publication 590-B, Distributions from Individual Retirement Arrangements (IRAs). Like many owners of retirement accounts, Barbara has received notices from each of her IRAs custodians stating the required amount.

Normally, each custodian will withhold 10% of the withdrawal for income taxes, or alternatively, will give the retiree the option of withholding or not. In most instances, unless these funds are needed currently, it is advisable to have the 10% withheld.  

Seniors should consider leaving the funds in their retirement accounts as long as possible to increase interest. When Barbara prepared her tax return for 2018, she owed $4,500 in taxes for which she did not have cash available. She withdrew this amount as an RMD from one of her IRAs. She can wait to take other RMDs until she needs the money or until December 31, whichever is earlier.

The total amount of all RMDs Barbara must make for 2019 is $25,000.00. She, as all retirees, would be well advised to invest amounts she will not need to maximize their earning potential. Barbara has decided put those funds she doesn’t need into a ladder of CDs ranging from one to five years.       

Sandra W. Reed is an attorney with Katten & Benson, an Elder Law firm in Fort Worth. She lives in beautiful Somervell County, near Chalk Mountain. She may be contacted by phone at 254.797.0211 or by email at swreed2@yahoo.com.