Frequently asked questions

Required Minimum Distributions

 

What is a required minimum distribution?

The required minimum distribution (RMD) is the amount of money the U.S. federal government requires you to withdraw annually from your Traditional IRA after you turn 70½.

However, many IRA account holders prefer to leave their money in the account so it can continue to earn interest. You can avoid making RMDs at age 70½ if:

  • You’re still working
  • You’re still participating in your company’s retirement plan AND
  • You don’t own more than five percent of the company
  • If you meet these requirements, you can wait to take RMDs until April 1st of the year following your retirement. If you don’t meet these requirements, you need to take RMDs out starting April 1st after the year you turn 70½. After that, you need to take RMDs by December 31st of each year.

    For Roth IRAs, RMDs do not apply until the death of the account holder.

How much are required minimum distributions?

They vary based on your age and the balance in your IRA. You can calculate your estimated RMD at IRS.gov.

Is there a required minimum distribution penalty?

Yes, you will be subject to a penalty of 50 percent of the portion not withdrawn. You will be required to withdraw the full amount, which will be taxed according to your filing status for the year.

For example, let’s say your annual RMD is $6,000. If you do not withdraw the funds, you will owe the IRS $3,000 as a penalty, and the $3,000 you keep will be taxed as well.

 

Have questions about IRAs?

We’re here for you. Speak with a banker at a BBVA Compass branch near you or contact one of our customer service representatives by phone.