How Are Taxes Figured on Rmd Accounts?

Congress encourages Americans to save for retirement by investing in tax-deferred accounts such as 401(k)s, IRAs and 403(b)s. The contributions grow tax free, but at age 70 1/2, the IRS wants account owners to begin taking the required minimum distribution (RMD) out of those accounts with income tax paid on the withdrawals.

Worker, Retiree and Employer Recovery Act of 2008

This act waives RMDs from IRAs, profit sharing, money purchase pension, 403(b)s and certain 457 retirement plans for 2008. It does not waive a 2008 RMD due by April 1, 2009.

First RMD

The RMD is based on the account value on Dec. 31 of the preceding year. The withdrawal can be taken any time that year but no later than Dec. 31. The deadline for withdrawal is extended until April 1 for the year the owner turns 70 1/2.

Calculating RMD

A minimum Required Distribution Calculator can be found at If the account owner is withdrawing 3.65 percent or more from his total tax-deferred accounts at age 70 1/2, no additional RMD will be necessary. The RMD amount does increase every year.


If a sufficient withdrawal is not made each year, a tax penalty of 50 percent of the RMD is levied.

Tax Consequences

Social Security benefits can become taxable depending on your marital status and total income. Total income includes taxable pensions, wages, interest, dividends, any tax-exempt interest income plus half of your Social Security benefits.

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