Dear Carrie: I am turning 70 in a few months and know I’ll be forced to withdraw money from my retirement accounts. How does that work, and are there some special rules I need to be aware of? — A Reader

Dear Reader: I think reaching age 70 is an important milestone, so first of all, congratulations. You probably have a lot to celebrate. However, while you’re blowing out the candles, the IRS is lying in wait, ready to collect some revenue. That’s because you must begin taking a yearly required minimum distribution from your retirement accounts once you reach age 70 1/2.

This includes many of your tax-advantaged accounts — traditional, SEP and SIMPLE IRAs and 401(k) plans — once you retire. You can delay taking an RMD from your 401(k) if you’re still employed. And if you have a Roth IRA or Roth 401(k), you’re in the clear. There is no RMD for a Roth.

Though the concept of an RMD is simple, there are definitely certain rules you need to be aware of to avoid some pretty hefty penalties. Here are a few things to keep in mind.

Don’t Be Late

Technically, you have until the year after you turn 70 1/2 to take your first RMD. The IRS gives you the choice of taking it either by the end of the year you turn 70 1/2 or by April 1 of the year following. For instance, if your 70th birthday is Dec. 1, 2015, you turn 70 1/2 June 1, 2016, so you could delay taking your first RMD until April 1, 2017. All subsequent RMDs must be taken by Dec. 31 of every year.

This timing is no casual matter. The penalty for failure to take your RMD on time is a hefty 50 percent of the amount that should have been withdrawn — and you still have to pay taxes on it. Which brings us to the next point.

Factor in Taxes

Delaying your first RMD may seem to make sense if you don’t need the money, but there’s another consideration. Even if you wait until the April 1 deadline, you still have to take your second RMD by Dec. 31 of that same year — two distributions in one year. Distributions are considered ordinary income and are taxed as such. Taking two in one year could bump you into a higher tax bracket. Best to think big picture.

Calculate Correctly

You must calculate an RMD for each of your retirement accounts based on their value Dec. 31 of the previous year. Start by listing the fair market value of your individual retirement accounts as of that date. Next, determine your life expectancy using appropriate life expectancy tables from the IRS. You can find them in Publication 590, available at The basic formula is: Fair market value divided by life expectancy equals RMD.

Here’s a simple example. Say your IRA is valued at $100,000. Using the Uniform Lifetime Table, the first year you would divide that by 27.4 (years). So your first RMD would be $3,649.64.

To make it easy, the financial institution where you keep your IRA may calculate your RMD for you, but it’s wise to know the formula yourself.

Decide How to Take Your


Though you calculate an RMD for each retirement account, you don’t have to take the distribution specifically from each. You can take the sum total of your RMDs from any one account, making it a much simpler process.

There’s an exception, however, for 401(k) accounts and most other types of employer-sponsored retirement accounts. If you have more than one, you have to calculate and take a withdrawal from each account.

Consider Consolidating

If you have just one retirement account with one financial institution, taking your yearly RMD can be a pretty simple process. But if you have several accounts at various banks or brokerages, you may want to consolidate everything in one place. You could also consider rolling any 401(k) accounts still at a former employer into an IRA. This would make it easier to calculate your total RMD, as well as to determine which account to tap for the distribution.

One more thought: Just because you’re required to take a distribution doesn’t mean you have to spend it. You can always decide to sock this money away in a taxable account and let it grow as you continue to enjoy a long retirement.

Carrie Schwab-Pomerantz, CERTIFIED FINANCIAL PLANNER ™ is president of the Charles Schwab Foundation and author of “It Pays to Talk.” You can e-mail Carrie at