Age 70½ is generally when you have to start withdrawing a portion of your IRA or employer plan savings. The amount is determined by applying a life expectancy table from the IRS to your account balance. Our RMD calculator can help you figure out what you need to withdraw. If you inherit an IRA, the IRS requires you to take an RMD each year, even if you’re younger than age 70½.
So what happens if you fail to take your annual RMD by the deadline? Well, you could end up owing an excise tax of up to 50% of the amount you were required to withdraw. That’s higher than even the top federal income tax rate of 39.6% for 2017. You’ll also have to complete an additional tax form, Form 5329. The timing of that first distribution can also make a difference in the amount of income tax you’ll owe. The IRS lets you delay taking your first RMD payment until April 1 of the next calendar year after you reach age 70½. If you expect your income—and tax rate—to be lower the year after you reach the trigger age, you could save taxes by waiting. However, you’ll have to take two distributions that next year, which could end up tipping you into a higher tax bracket.
Don’t pay more than you have to
Your IRA isn’t the only type of retirement account with RMDs. Your employer-sponsored retirement plan is also subject to these rules. However, depending on plan rules, you may be able to delay RMDs from your account if you’re still working at age 70½ or older.
Remember workplace accounts
Set up your RMD in 3 steps
- Log on to your Vanguard account.
- From the menu, choose My Accounts and select Retirement contributions, distributions & RMDs.
- Under the Required minimum distribution (RMD) tab, choose either setting up an automatic distribution or taking your RMD now.
Along with our RMD calculator, we can do the calculation for you and automate the withdrawal process each year when you use our free RMD Service. Get started by calling us at 877-662-7447.
We can help
We recommend that you consult with a tax or financial advisor about your individual situation.
All investing is subject to risk, including the possible loss of the money you invest.
Distributions received before you’re age 59½ may not be subject to the 10% federal penalty tax if the distribution is due to your disability or death; is distributed by a reservist who was ordered or called to active duty after September 11, 2001, for more than 179 days; or is for a first-time home purchase (lifetime maximum: $10,000), postsecondary education expenses, substantially equal periodic payments taken under IRS guidelines, certain unreimbursed medical expenses, an IRS levy on the IRA, or health insurance premiums (after you’ve received at least 12 consecutive weeks of unemployment compensation). State withholding tax rules vary, but in all cases you’ll remain liable to pay any income tax that is due on your RMD. Also note that tax penalties may apply if your estimated state income tax payments or income tax withholding is insufficient under state rules.