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Tax Resource Center

IRA and CESA Contribution and Deduction Limits & Rules

Tax-deferred accounts have limits on the amount of money that can be contributed per year. In some cases the rules get very detailed and take into consideration how you file your taxes, your income, and your work status. Here’s some information about the tax ramifications of how you fund your tax-deferred accounts as well as additional deduction limits and withdrawal rules.

Older couple on beach with surfboard

Affected Accounts

Traditional IRA, SEP IRA, SIMPLE IRA, 401(k), profit sharing, and 403(b)

When They Start

For traditional IRA, SEP IRA and SIMPLE IRA, April 1 of the year following the calendar year in which you reach age 70½

For 401(k), profit sharing, 403(b), April 1 of the year following the calendar year in which you reach age 70½ or retire, whichever comes later (if the plan document contains a delayed retirement provision)1

Exceptions

For Roth IRAs, withdrawals aren’t required until after the death of the account owner

Making Required Minimum Distributions

With your retirement accounts, you’ll want to make sure you know how much is enough to withdraw from your account as well as the date your withdrawal must be made by every year in order to avoid heavy penalties from the IRS. In the year your first RMD is required (generally, the year you turn 70½), you have until April 1 of the following year to take it, after that it is 12/31 of the year the RMD is for. After the first year you reach age 70½, and for every year thereafter, you’ll be required to make your RMDs by December 31.

How It’s Calculated

RMD is calculated by dividing the account value (adjusted for any outstanding transfers, rollovers and recharacterizations) divided by a life expectancy factor. For most people, the Uniform Life Expectancy Table is used to determine this factor. The factor is based on a hypothetical joint life expectancy using the account owner's age and a beneficiary age 10 years younger. If the sole beneficiary is a spouse who is more than 10 years younger, then a joint life expectancy factor can be used.

If you have multiple traditional IRAs, the RMD must be calculated for each one, but the distribution can be taken from any one or more of the IRAs.   

Options & Strategies

Establish a balance between how long you’ll need your money to last and the minimum you’re required to withdraw every year. The IRS provides worksheets and lifetime tables that help you to accurately calculate your RMD. You can also set up a recurring distribution plan on your Thrivent Mutual Fund account that will automatically calculate your RMD each year and distribute it to you.

If you are 70 1/2 or older, you can make a qualified charitable donation up to $100,000 which counts toward meeting the RMD requirement for an IRA. The distribution must be paid from the IRA directly to a charity. The distribution is not taxable and no charitable deduction can be claimed on the federal tax return. State income tax treatment varies by state.  

How It’s Taxed

Generally, required minimum distributions are included with your taxable income, with the exception of any money that has already been taxed as non-deductible contributions, or that can be received tax-free.

Penalties

Failing to withdraw or making withdrawals that are less than the required minimum distribution are subject to an IRS penalty of 50% of the amount that wasn’t received by you.

Inherited Accounts and RMDs

When you inherit a retirement account, you'll need to calculate the required minimum distribution for the account you've inherited. The options vary based on if you are the sole beneficiary of your spouse's account or someone else. In addition to the options below, an owner's surviving spouse and sole beneficiary has the option to transfer an IRA to the spouse's own IRA and treat it as his/her own.   Options for taking requirement minimum distributions include:  

If Original Owner Dies Before Required Beginning Date

Traditional, SIMPLE, SEP, or Roth IRA

Spouse: Begin taking RMDs by the later of December 31st of the year in which the owner would have turned 70 ½, or the year following the owner’s death, based on your single life expectancy. If you use your life expectancy, use the Single Life Expectancy Table each year to determine the factor.

Non-spouse: Begin taking the RMD for your inherited account by no later than December 31st of the year following the owner's death. Use the Single Life Expectancy Table to determine the factor to use for the first distribution. For each year after that, reduce that life expectancy factor by one.

OR

Take a full distribution by December 31st of the year containing the fifth anniversary of the owner’s death (five-year rule). Organizations and other non-person beneficiaries must use the five-year rule. Exceptions may apply for some trusts.

If Original Owner Dies After Required Beginning Date

Traditional, SIMPLE, or SEP IRA

If the owner did not take that year's RMD prior to his/her death, the beneficiary(ies) must withdrawn any remaining amount prior to the end of the year.

Spouse: Begin taking RMDs by no later than December 31st of the year following the original owner’s death, based on the longer of your or what would have been your spouse’s single life expectancy.

If you use your life expectancy, use the table each year to determine the factor. If you use your spouse's factor, it is reduced by one each year.

Non-spouse: Begin taking RMDs by no later than December 31st of the year following the owner's death. Use the life expectancy factor of you or the owner (in the year of death) found in the Single Life Expectancy Table that results in the longer distribution period. Reduce the factor by one each subsequent year.

Roth IRA

Spouse: Begin taking RMDs by no later than December 31st of the year following the owner's death, based on your single life expectancy. Use the Single Life Expectancy Table to determine the factor to use based on your age.

Non-spouse: Begin taking RMDs by no later than December 31st of the year following the owner's death. Use the life expectancy factor (as found in the Single Life Expectancy Table) of you or the owner (in the year of death) that results in the longer distribution period. Reduce the factor by one each subsequent year.

OR

Take a full distribution by December 31st of the year containing the fifth anniversary of the owner’s death (five-year rule). Organizations and other non-person beneficiaries must use the five-year rule. Exceptions may apply for some trusts.

Consult Your Tax Advisor

Calculating Required Minimum Distributions can be tricky. At Thrivent Mutual Funds, we recommend you consult your tax advisor to make sure you’re getting the most out of your well-earned retirement money. Thrivent Mutual Funds and their representatives cannot provide legal or tax advice.

15%+ owners of business sponsoring retirement plan must start RMDs by April 1 following the calendar year in which they reach age 70 1/2 regardless if there is a delayed retirement provision.