Required Minimum Distributions

In 2017, the oldest baby boomers, who turned age 70 in 2016, reached the required beginning date (RBD) for taking withdrawals from traditional IRAs and employer retirement savings plans: April 1, 2017. The RBD, the latest possible date allowed to take a mandatory required minimum distribution (RMD) from traditional IRAs and tax-deferred plans, is April 1 of the year following the year that an individual reaches age 70½ and baby boomers are there now. At this time, retirees are required to spend down these accounts, whether they need the money or not, and withdrawals are taxed as ordinary income.

A 2017 article in the AAII Journal noted that the RMD schedule does not fit retirees’ spending patterns. The first RMD at age 70½ is 3.65 percent of the account balance and the RMD at age 90 is 8.77 percent of the account balance, which looks like a “waterfall” when plotted on a graph. About $10 trillion is sitting in baby boomers’ tax-deferred accounts. If they do not calculate the amount of their RMD correctly, the penalty is 50 percent of the amount that they failed to withdraw.

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