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What You Need to Know about Required Minimum Distributions


As more Americans live longer and work later, more people are having to face the reality of required minimum distributions from their tax-deferred retirement vehicles. Here's what you need to know.

Personal Finance, Retirement, Investing, Savings

As people live longer and healthier lives, many also choose to work longer. This can be especially true for healthcare professionals like yourself. You will absolutely benefit from the extra income you’ll earn from working longer and the extra retirement investments you’ll make over that time. But there is also an age at which you must start taking required minimum distributions (DMDs) from tax-deferred retirement vehicles such as 403(b), 401(k) or individual retirement accounts (IRAs).

Why? Well, it’s mostly because Uncle Sam can only wait so long to get its designated portion of those funds. (Roth IRAs, which are not tax-deferred, are not subject to RMDs.) Once you reach age 70½, the IRS requires you to start taking annual distributions of at least a minimum amount from each tax-deferred retirement account you own. That minimum amount is subject to change each year, but you can find the amount you’ll have to withdraw from this page on the Internal Revenue Service website. Many retirement providers also offer RMD calculators. That page also has detailed information on exactly when you need to start taking RMDs.

Knowing what—and when—you have to take RMDs is very important. Failure to comply with these regulations can result in hefty excise taxes of up to 50% of the full amount that was required to be distributed.

Still working? It may not matter.

If you’re a physician in a group practice setting or at an academic health center, for example, and you have an employer-sponsored plan, that plan may allow you to wait until after you’re retired to take your first RMD from that plan, even if you’re over age 70 ½. Ask your plan administrator or read the plan documents to see if this is the case. In the meantime, you may be able to consolidate tax-deferred money from other retirement accounts into your current employer’s retirement plan, which would allow you to put off taking RMDs on the transferred money until retirement. Not all plans allow for such rollovers, so check with your plan administrator or your financial advisor.

For many physicians not covered by an employer-sponsored plan, generally your RMDs for whatever tax-deferred retirement plan you have must start by April 1 following the year you turn 70½, even if you're still working.

Some other notes worth mentioning:

  • After taking a first RMD from a particular account, you must take an additional RMD from that account for each subsequent year by December 31 of the year.
  • You—not your retirement provider, tax professional, or financial advisor—are ultimately responsible for calculating your own RMDs.
  • You can withdraw more than the required minimum.
  • You can not take money from an RMD and roll it over to another retirement account.

RMDs can be a little complicated, so if you’re nearing your retirement date and aren’t sure when to start taking distributions or how much to take, talk to a trusted financial professional.

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Victor J. Dzau, MD, gives expert advice
Victor J. Dzau, MD, gives expert advice