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Retired couple enjoying the pink sunset
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After most retirement account plan owners reach the age of 70 ½, they must withdraw a certain amount from their plan every year. This amount is referred to as a required minimum distribution, or RMD, and it is applied to all employer sponsored retirement plans, including 403(b) and 401(k) plans. IRA-based retirement plans and traditional IRAs are also subject to RMD rules, as are Roth 401(k) accounts. Roth IRAs are one of the only plans that RMD rules do not apply to, assuming the account owner is living.
The amount of each person’s RMD depends on each account it is applied to. It’s determined by dividing the balance of the account as of December 31 of the previous year with a person’s life expectancy factor. This factor is found in different tables published by the IRS and is affected by who the account’s beneficiary is and how old a person’s spouse is. For example, someone whose spouse is less than 10 years their junior is best suited for using the Uniform Lifetime Table, while someone with a spouse over 10 years their junior can use the Joint and Last Survivor Table.
While individuals must calculate the RMD for each retirement account they own, they can sometimes withdraw the total amount from one or more accounts. This applies to IRA accounts and 403(b) accounts. Owners of 457(b) and 401(k) plans must take an RMD from each account separately. If an RMD is not taken, there is a penalty of a 50 percent tax on the difference between the RMD and the amount withdrawn. This is assessed on top of the regular tax applied to retirement account withdrawals.
