Required minimum distributions can be confusing


Readers continue to have tons of questions about required minimum distributions - the money we must withdraw from tax-deferred retirement accounts after we turn 70 and a half. (If we don’t take the money out, the Internal Revenue Service can slap us with a penalty of 50 percent of the amount we failed to withdraw.)

We addressed your most common questions on RMDs last month. But we also precipitated a slew of others.

To recap the previous main points:

We must begin taking money out of traditional IRAs no later than April 1 of the year following the year we turn age 70 and a half. (We failed to specify that traditional IRAs in this context include SEP-IRAs and SIMPLE IRAs.) Subsequent withdrawals must be made no later than Dec. 31 each year.

We must withdraw a minimum amount each time, based on the value of our traditional IRA as of the previous Dec. 31 and our life expectancy as measured by IRS tables.

If we have more than one traditional IRA account, we use their combined value to calculate our required withdrawal. We can choose to take the money out of any one or combination of accounts we want.

A point we didn’t cover, and you keep asking about, is what to do with some types of IRAs and tax-deferred employer-sponsored retirement plans. Here are some of the basic rules. (Our main source for this information is Ed Slott, a certified public accountant in Rockville Centre, N.Y. and nationally recognized expert on RMD issues.) See Web site

Distributions from SEP-IRAs and SIMPLE IRAs follow the rules that apply to traditional IRAs. In adding up the total value of your traditional IRAs to figure out your required distribution, you would include these SEP-IRAs and SIMPLE IRAs if you have them.

But you would not include Roth IRAs or inherited IRAs. No distributions are required from your Roth IRAs as long as you live, and inherited IRAs have their own rules we won’t get into here.

Employer-sponsored 401(k) plans are subject to required minimum distributions, too. But compared to IRAs, the rules are different.

For example, unless you own more than 5 percent of the company that sponsors your 401(k) plan, you may delay taking money out after age 70 and a half if you’re still working for that company.

Withdrawals must then begin no later than April 1 of the year after the year you stop working for the company. (If you’re still working somewhere, but not for the company that sponsors your 401(k) plan, no delay for that plan is permitted, and you must begin withdrawals after age 70 and a half.)

The minimum withdrawal from a 401(k) plan is calculated separately from any IRA withdrawal and must be taken from the 401(k) plan, not any IRA. Unlike the rules for IRAs, if you have more than one 401(k) plan, you must calculate and take a minimum withdrawal from each separately.

So-called 403(b) plans, which are tax-deferred retirement plans for teachers, nurses, ministers and other employees of certain not-for-profit organizations, are also subject to required minimum distributions. Under an “old money” exception, no distributions are required until age 75 for any money that was in your 403(b) account as of Dec. 31, 1986. As with 401(k) plans, the rest must be withdrawn starting no later than April 1 of the year after you become 70 and a half or retire from the job offering the plan.

But unlike 401(k) plans, if you have more than one 403(b) plan, you can combine their values to figure you minimum required 403(b) distribution and may withdraw the money from whichever account or accounts you want. You cannot satisfy your required distribution from your 403(b) plan by withdrawing from your IRA, or vice versa.

Humberto and Georgina Cruz are a husband-and-wife writing team who work together in this column. Send questions and comments to