What Is a Required Minimum Distribution?

When you turn 72, with few exceptions, tax law requires that you begin taking withdrawals, known as Required Minimum Distributions (RMDs), from your tax-deferred retirement accounts.  This includes your traditional IRAs, 401(k)s and 403(b)s, such as your JRB 403(b) retirement account. The RMD is the least amount you must withdraw from your tax-deferred retirement accounts each year. If you’ve already withdrawn more than the required minimum, you are not subject to an RMD. Note that Roth IRAs do not have an RMD during your lifetime.

In 2019, Congress changed the age at which you must begin taking an RMD from 70½ to 72. If you were 70½ before December 31, 2019, you must continue to take your RMD even if you are not yet 72.

An RMD Exception for JRB Plan Participants

If you are 72 or older and still working within the Conservative Movement, you are exempt from the RMD for your JRB account until you retire. Even if you are exempt from taking an RMD from your JRB account, you will need to take withdrawals from your other tax-deferred retirement accounts if you are 72 or older. Roll over your other retirement accounts into your JRB account to avoid future RMDs.

 

When Must I Take My First RMD?

Generally, you must take your first RMD by the end of the calendar year you turn 72. For a distribution to satisfy your 2020 RMD, for instance, it must be taken between the beginning of January 2020 and the end of December 2020. Please note that the JRB cannot process a distribution on the last business day of the year. Check with each of your providers to find out when their deadlines are.

A special rule governs the timeline for taking your first RMD. You are subject to the first RMD from your JRB retirement account the year you reach age 72 (or, if you were still working in the Movement at 72, the year you retire). In the first year of eligibility for the RMD, you can delay taking your distribution until April 1 of the subsequent year.

Keep in mind that delaying your first RMD does NOT allow you to delay subsequent RMDs. For example, if 2020 is the first year you are subject to an RMD, you have until April 1, 2021 to satisfy the requirement. However, delaying the 2020 RMD does not delay the 2021 RMD; you’ll need to take two RMDs in 2021 (for 2020 and 2021). Note that you’ll owe taxes on the combined amount you receive. Check with your tax advisor before choosing to delay your first RMD.

How Much Money Must I Withdraw?

The formula for calculating the RMD is based on your age and the balance in your account at the end of the previous calendar year. The balance is divided by a life-expectancy factor published by the IRS.  For example, the factor for an individual who is age 75 is 22.9 years; accordingly, if you turn 75 in 2020 and your account balance on December 31, 2019 was $100,000 then your 2020 RMD is $4,367 ($100,000/22.9).

Penalties

If you fail to withdraw your RMD on time, a 50% penalty is imposed on the amount not distributed.  For example, if your RMD is $10,000 but you have not withdrawn that amount by the deadline, you will pay a penalty to the IRS of $5,000.  Therefore, it is imperative that you withdraw your RMD from all of your tax-deferred retirement accounts, in order to avoid such an onerous penalty.

Taxes

Distributions from your tax-deferred retirement accounts, including RMDs, are taxed as ordinary income and are subject to federal, and most state, income taxes.  An exception exists for retired clergy whose distributions are tax-free to cover a housing allowance. 

 

The JRB Advantage

The JRB makes it easy for you to comply with the RMD rules:

  • We remind you when you must take an RMD.
  • We calculate the RMD from your JRB account.
  • We distribute the RMD on any schedule you choose – monthly, quarterly, in one lump sum or whenever you request a portion of the distribution.
  • We protect you from penalties by automatically processing the RMD if you do not respond to our reminders.