Required Minimum Distribution

Key Takeaway

Employer-sponsored plans offer advantageous tax breaks designed to encourage people to save and invest for their retirement. Contributions may be tax deductible (if you qualify), while earnings grow on a tax-deferred basis. However, there’s a catch. The IRS requires plan participants to eventually pay taxes at ordinary income-tax rates on taxable distributions taken from their plans. And participants must begin taking money out of the plan once they reach a certain age.

If you participate in an employer-sponsored plan, the IRS requires that you begin taking Required Minimum Distributions (RMDs) from your account no later than April 1 of the year following the year you reach age 72*. If you take your first RMD on April 1, you will be required to make another withdrawal by December 31 of the same year — for a total of two RMDs in that year. Subsequent RMDs must be taken annually by December 31. If you are not an owner of the business sponsoring the retirement plan, you may defer your RMD while you are still working.

Deciding On An Amount

How much will you have to withdraw from your employer-sponsored plan to satisfy the RMD rules? Your plan vendor should calculate your RMD amount for you, but you can access the IRS’s website at for help calculating the amount you must withdraw each year.

The calculation uses an IRS life-expectancy-based table. You can also access an RMD calculator. Click here to view all calculators.

Just be careful — if you take out too little, you’ll be liable for a 50% excise tax on the amount not withdrawn as required. You can always take out more than the required minimum amount. However, additional withdrawals are also taxable as ordinary income and will not count toward RMDs for future years.

Changes can be made to your account at any time by logging into My Alerus.

*Individuals attaining age 70 ½ before January 1, 2020 (i.e. born June 30, 1949, or earlier) are subject to pre- SECURE Act distribution requirements.