Be Sure to Take Your MRD to Avoid Tax Penalties

Year-end is coming up fast. If you are over 70 and 1/2 years old, don’t forget to take your minimum required distribution from your retirement accounts. Fidelity has the scoop on the MRD rules.

Beginning when you turn 70½, IRS regulations generally require you to withdraw a minimum amount of money each year from your tax-deferred retirement accounts, like traditional IRAs and 401(k) plans, or pay penalties of 50% on missed MRD amounts. This is why it’s important that you understand how MRDs work, and the timing of distributions.

How the amount is determined

Minimum required distributions, sometimes referred to as required minimum distributions (RMDs), are determined by your age, your account balance, and your life expectancy. If you have a spousal beneficiary who is more than 10 years younger than you and is the sole beneficiary for the entire distribution year, you can base your MRD on your joint life expectancy.

For inherited IRAs, the rules are different. (Learn more.)

Uniform lifetime table for minimum required distributions
Age	70	75	80	85	90	95	100	105
Years	27.4	22.9	18.7	14.8	11.4	8.6	6.3	4.5
Min. %	3.6%	4.4%	5.3%	6.8%	8.8%	11.6%	15.9%	22.2%
The table above shows, in five year increments, the minimum required distribution periods (based on age and the expected number of years for distributions) and percentages for tax. For a more complete picture, please visit the Uniform Lifetime Table.

Deadlines for withdrawals

For traditional IRAs, you must begin taking minimum required distributions by April 1 of the year following the year in which you turn 70½. The same generally holds true for 401(k) plans and other qualified retirement plans. However, if you wait until after December 31, you will have to take two MRDs in one year, which could affect your income tax bracket or Medicare eligibility.

If you are over 70½ and still working, you can generally delay your MRDs from your 401(k) until you retire.² For all subsequent years, distributions must be made annually by December 31. Fidelity customers must complete MRD transactions by December 30 in 2016 as the deadline falls on a weekend. Remember to allow time for any trades to settle if you are selling investments to take your MRD.*