When it comes to taking required minimum distributions (RMDs) in a self-directed IRA, there are several options to consider. The RMD is the minimum amount that the IRS requires you to withdraw from your Traditional, SEP, or SIMPLE IRA each year once you reach a certain age, typically starting at age 72. Here are some key points to keep in mind:
1. Options for Taking RMDs:
2. Using Illiquid Assets:
Self-directed IRAs often hold illiquid assets such as real estate, precious metals, and private equity. If your self-directed IRA has enough cash available and you wish to take the RMD from that account, you must provide a distribution form to your account administrator or custodian.
2. How Are RMD Amounts Calculated?
RMDs are based on your previous year-end account balance. The IRA custodian will use an IRS uniform table that applies a “distribution period” based on your age when determining each year’s RMD amount.
To calculate your RMD, you take your IRA balance as of December 31 of the prior year and divide it by your distribution period number from the IRS table. To make it easier, you can find an RMD calculator from the SEC here.
3. What Withdrawals Count Towards my RMD?
Any withdrawals you take from your IRA during the year can count toward your RMD. This includes not just your principal investments made into the account but also any investment gains you withdraw.
You can also meet your RMD by taking multiple withdrawals instead of a single distribution. The total taken just needs to reach or exceed the RMD amount.
4. Consequences of Not Taking RMDs:
Failing to take an RMD or withdrawing less than the required amount can result in substantial tax penalties. The IRS imposes a significant tax penalty on any undistributed amounts, typically 25% of the RMD that should have been taken but wasn’t.
5. Seek Professional Advice:
It’s always best to work with a financial advisor or tax advisor to ensure you are meeting your RMD requirements and to understand the specific rules and options for taking RMDs from a self-directed IRA.
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