401k Minimum Required Distributions (MRDs)
401k Minimum Required Distributions (MRDs) are established by the Internal Revenue Code to make sure that retirees actually withdraw their money upon retirement (and use it for their day to day expenses) as opposed to passing on this wealth to their heirs. As soon as you reach the age of 70.5, you must start withdrawing money starting April 1st of the following year (at 71.5) or April 1st of the year following your official retirement.
Every year, you must take the MRD at or before December 31st and failure to do will result in 50% penalty of the amount of the MRD as well as local & federal state taxes (carried out by the Internal Revenue Code).
Instead of Taking the Cash, can i Rollover my MRD to another IRA account?
No! Minimum Required Distributions (MRDs) are meant to help provide for your living expenses when you hit retirement and are no longer working. You are therefore expected to take the cash and rolling over into an IRA (Individual Retirement Account) or another employee-sponsored 401k plan is not permitted.
Do I have to take the MRD Cash when I'm still Working?
If you reach the age of 70.5 and continue to work beyond that, you can defer your Minimum Required Distributions (MRDs) to April 1st of the year following the year you officially retire. This is only possible if you do NOT own more than 5% of the company you work for (as in stock plans or business partnerships).
Can i Take Out more Cash than my Minimum Required Distribution (MRD) Each Year?
Yes you are permitted to take out more cash than the MRD, check with your 401k plan administrator on exactly how much you can take out (percentagewise or total amount).
How Are Minimum Required Distributions (MRDs) Calculated?
Your MRD payments are calculated using the formula:
Note: The Life Expectancy Years is taken from the Uniform Lifetime Table
Spouse More Than 10 Years Younger than You
If your spouse is more than 10 years younger than you and will be the sole beneficiary of your 401k retirement savings upon your death, then you can use the Joint Life Expectancy Table to calculate your Minimum Required 401k Distributions (MRDs).