What You Need to Know About Your Required Beginning Date
By Beverly DeVeny, Chief IRA Analyst
What is the RBD? RBD stands for required beginning date. It is the date by which an IRA owner must take their first required minimum distribution (RMD) in order to avoid a 50% penalty. Generally, an individual must take their first distribution from a retirement account in the year they turn age 70 ½. The following points clarify exactly when you must take your first distribution.
- When is the RBD? The RBD is one of the quirkier parts of the IRA rules. It is April 1 of the year after you turn age 70 ½. Not April 15, tax day; not March 31, the end of the quarter; but April 1. And, not age 70 or age 71, but age 70 ½. This means that individuals born in January – June will have their first RMD in the year they are age 70. Those who are born in July – December will have their first RMD in the year they are age 71. They will turn age 70 in one year, but not be age 70 ½ until the following year.
- Deferring RMDs - If your first RMD is due in 2016, you can defer taking that distribution until as late as April 1, 2017. But, if you do that, you still have to take your 2017 RMD by December 31, 2017. That means that you must take two RMDs in one year.
- Dying before the RBD - Death before the RBD means you don’t have an RMD, even if you already took one. Let’s say an individual has their first RMD due in 2016, so they take it by December 31, 2016. Then they die on January 1, 2017, well before their RBD of April 1, 2017. They end up having no RMD for 2016, even though they took one, because they died before their RBD.
- Exception to the RBD -There is only one exception to the IRA RBD. Funds invested in a QLAC (qualifying longevity annuity contract) do not have required distributions until age 85.
Employer Plan Exceptions to the RBD
- Still working – If you are still working for the employer that sponsors the plan, you do not own more than 5% of the company, and the plan allows, the RBD for that plan is April 1 of the year after you separate from service. Just as with an IRA, if you defer your first RMD until April 1, you will have to take another RMD from the plan by December 31 of that year. If you want to move the funds to an IRA, all outstanding RMDs must be taken before the plan funds can be moved to an IRA.
- Old money in 403(b) plans – Funds that were in a 403(b) prior to 1987 do not have required distributions until the individual is age 75. The December 1986 account balance must be tracked by the employer or 403(b) custodian.