Individual retirement accounts (IRAs) play a key role in helping Americans save for retirement. In 2021, IRAs represented one-third of total U.S. retirement assets, providing an important income source for retirees.

But just as you formed a strategy and adhered to rules for investing in your IRA, you must also understand when and how to take your required minimum distributions (RMDs). The answers to these questions may help your distribution strategy meet legal requirements and your personal needs, too.

If you own a Traditional, SEP, SAR-SEP, or SIMPLE IRA account—you may begin taking penalty tax-free distributions from your account at age 591⁄2. You are required to start taking RMDs from your IRA once you reach a specific age (“RMD Age”), which is currently set at age 73, but will increase to age 75 starting in 2033. You are permitted to delay the first distribution until April 1 of the year after you reach RMD Age. This is called your Required Beginning Date (RBD). However, after the year in which you attain RMD Age, RMDs must be taken by December 31 of each year. If you delay your first RMD until the RBD, you will have two distributions in one tax year (i.e., the 2023 and the 2024 RMDs).

Note that if you own several IRAs, the RMD must be calculated separately for each IRA but you can generally withdraw the total of all RMDs for your IRAs (other than inherited IRAs) from any one (or more) IRA account(s) (other than Roth IRAs and inherited IRAs). Roth IRA accounts do not require distributions until the death of the owner.

However, if you receive less than your RMD amount for the calendar year, you are generally required to fill out IRS Form 5329 and are generally subject to a excise tax on the amount that should have been distributed but was not. Starting in 2023, the excise tax is 25% or, if certain conditions are met, 10%; however, for prior tax years, the excise tax is 50%. 

RMDs are calculated using your life expectancy. Of course, no one knows for certain how long they’ll live, but the IRS provides two life expectancy tables for lifetime RMD calculation purposes: the uniform lifetime table and the joint life expectancy table. You can find these tables on the IRS website (www.irs.gov) along with worksheets and instructions on how to perform the calculation. In general, you’ll use the uniform 

lifetime table to calculate your RMD, unless you qualify to use the joint life expectancy table and choose to use it. If your spouse is your sole primary beneficiary and is more than 10 years younger than you, you may be able to use the joint life expectancy table.

Even after you’ve begun taking RMDs, you can make a variety of changes to your account and distributions. You can always increase the amount of your distribution beyond the RMD, but keep in mind that you cannot apply the excess amounts toward the RMDs of future years. You can also update your beneficiary information at any time, but you must follow the specific requirements of your IRA custodian to update your beneficiaries. You may even change from the uniform table RMD calculation method to the joint life expectancy method if you name your spouse as the sole primary beneficiary for the entire calendar year and your spouse is more than 10 years younger than you. Your marital status is generally determined as of January 1 of each distribution year.

Getting your RMDs right once you reach RMD Age is an important part of your retirement income plan. A Financial Advisor who is familiar with your unique circumstances can help you structure a comprehensive plan to help you stay on track to meet your retirement goals.

Disclosures

Article by Morgan Stanley and provided courtesy of Morgan Stanley Financial Advisor.

Gloria Walas is a Financial Advisor in Pepper Pike Morgan Stanley Smith Barney LLC (“Morgan Stanley”). She can be reached by email at gloria.a.walas@morganstanley.com or by telephone at (216) 360-4902.

This article has been prepared for informational purposes only. The information and data in the article has been obtained from sources outside of Morgan Stanley. Morgan Stanley makes no representations or guarantees as to the accuracy or completeness of

the information or data from sources outside of Morgan Stanley. It does not provide individually tailored investment advice and has been prepared without regard to the individual financial circumstances and objectives of persons who receive it. The strategies and/or investments discussed in this article may not be appropriate for all investors. Morgan Stanley recommends that investors independently evaluate particular investments and strategies, and encourages investors to seek the advice of a Financial Advisor. The appropriateness of a particular investment or strategy will depend on an investor’s individual circumstances and objectives.

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