RPF M3 U5 Required Minimum Distributions Flashcards
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What is a required minimum distribution (RMD)?
Distributions that must be made after participants reach age 73 and retire, or for 5% owners, after reaching age 73.
Prior to 2020, the age was 70½. There was no RMD required for the 2020 year. For 2021 and 2022, the required minimum distribution age was 72 but this was increased to 73 by the SECURE 2.0 act which will have its first impact in 2024. In 2033 the age will increase to 75.
By when must the first RMD be paid?
The first RMD must be paid by April 1st of the year after participants reach age 73 and retire, or for 5% owners, after reaching age 73.
By when must the second and subsequent RMDs be paid?
The second RMD is due by December 31st of the same year of their required beginning date.
What is the required beginning date (RBD)?
The date by which the first required minimum distribution must be made.
What factors determine the required beginning date for RMDs?
- Will the participant be at least 73 during the current calendar year? 2. Is the participant employed by the company? 3. Did the participant own more than 5% of the company during the calendar year?
What happens if a participant postpones their first RMD until April 1st?
They will receive two payments that first year.
How is a 5% owner defined?
A 5% owner means greater than 5% owner, with family attribution considered in ownership calculations.
What are the differences in RMD rules for IRAs compared to 401(k) plans?
- All RMDs from an IRA must start after the individual turns 73, regardless of employment status. 2. RMDs can be aggregated across IRAs but not across 401(k) plans. 3. Qualified Roth accounts are not subject to RMDs in an IRA but are in 401(k) or 403(b) plans.
What is the account balance method for determining RMD amount?
The amount of the minimum distribution is found by dividing the vested account balance (as of December 31st of the prior year) by a life expectancy factor.
How do you calculate the RMD amount?
Value of Account Balance / Life Expectancy Factor = Minimum Distribution.
What is the life expectancy factor for age 83?
The life expectancy factor for age 83 is 4.1.
What is a required minimum distribution (RMD)?
An RMD is a distribution that is required, ensuring retirement savings are paid out and are not held in the plan indefinitely.
By when must the first RMD be paid for a 5% owner?
The first RMD must be taken by April 1st following the year in which the participant turns 73.
By when must the first RMD be paid for a non-5% owner?
The first RMD does not need to be taken until the participant retires, and it must be taken by April 1st following the year in which they meet both requirements (reaching age 72 and retiring).
By when must the second and subsequent RMDs be paid?
The second RMD must be paid by December 31st of the year of the required beginning date, and RMDs continue each year until the death of the participant.
What is the consequence of not taking an RMD?
There is a 25% excise tax required in addition to regular federal and state income taxes if a participant is required to take an RMD and does not.
What is the default federal tax withholding for RMDs?
RMDs are defaulted to have 10% federal tax withholding.
Can RMDs be rolled over into another qualified plan or IRA?
No, RMDs are ineligible to be rolled over into another qualified plan or IRA.
What must plan administrators provide to participants eligible for RMDs?
Plan administrators must provide a distribution notice to participants eligible for RMDs, often a special RMD notice indicating the participant’s distribution options.
What happens if a plan fails to give RMDs to participants?
Plans that fail to give RMDs to participants may be disqualified, and the plan administrator will need to correct the plan through an IRS correction program.
How is the RMD amount calculated?
The RMD amount is calculated by dividing the account balance by the life expectancy factor.
What is the life expectancy factor for Liam at age 83?
The life expectancy factor for Liam at age 83 is 17.7.
What is the RMD amount for Liam?
$500,000 (account balance) / 17.7 (life expectancy factor) = $28,248.59 (RMD amount).
What is Nancy’s required beginning date for her RMD?
Nancy’s required beginning date is April 1, 2025.
