403(b) Basic required minimum distributions (RMDs)

ARTICLE TAKEAWAYS

  • Learn when required minimum distributions (RMDs) must begin and how to calculate them
  • Review distribution options
  • Determine potential tax implications to participants

Generally, the Internal Revenue Service (IRS) requires 403(b) Basic participants to withdraw a minimum amount from their accounts annually starting no later than April 1 of the year after the year they reach age 73 or when they retire from employment from the employer maintaining the plan (whichever is later).*

* 5% owners of the sponsoring company must begin taking distributions when they reach RMD age, even if they haven’t retired. This requirement doesn’t apply to governmental plans or church plans.

The deadline for taking RMDs each year is December 31. However, participants may delay taking their first RMD until April 1 of the calendar year after the year in which they turn 73. If the first RMD is delayed, a second RMD is required by December 31 of that same calendar year.

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403(b) Basic distributions and taxes

Benefits of automated RMDs

Publication 571, Tax-Sheltered Annuity Plans (403(b) Plans)

Courtesy reminder letters are sent in October to participants who reach RMD age in the current year and don’t have an automatic withdrawal plan on their account.

In addition to the letter, eligible participants are reminded about the RMD requirement on their quarterly statements.

Participants must determine their RMD amounts each year based on the appropriate IRS table. The 403(b) beneficiary designation determines which table to use.

RMD amounts must be calculated separately when a participant has multiple 403(b)s. Once calculated, RMD amounts for all 403(b)s can be combined and taken from one or more of the 403(b) accounts. 403(b) RMDs cannot be taken from an IRA.

Capital Bank and Trust Company (CB&T) can calculate the RMD amount, or you can determine your client’s RMD amount. Participants are ultimately responsible for ensuring the calculated amounts are correct. For more information on calculating RMDs, refer to IRS Publication 571, Tax-Sheltered Annuity Plans (403(b) Plans).

Employer confirmation and certification are not required for participants who are required to take an RMD.

One-time distribution or automated RMD:

Complete the Required Minimum Distribution (RMD) Request for a one-time or recurring RMD. For recurring RMDs, review Benefits of automated RMDs for more information.

Reinvest the RMD:

Participants may reinvest their RMDs into a new or existing non-retirement account for themselves or another person. The participant must report any distributions from the 403(b) as income for the taxable year in which the distribution was taken. Requests to move money to a new or existing non-retirement account for the same owner can be processed by phone or by using the Required Minimum Distribution (RMD) Request. A signature guarantee is required to move funds to another owner. 

Note: You cannot roll the participant’s RMD into another tax-deferred retirement plan or an IRA.

RMDs are generally taxable and are subject to a voluntary 10% withholding unless the participant elects otherwise. RMDs are reported on Form 1099-R for the calendar year in which the distribution occurred.

For additional information on the taxes, refer to 403(b) Basic distributions and tax information.

Penalty for missed RMD:

During a calendar year, if a participant distributes less than the RMD, the difference not taken is known as an excess accumulation. The excess accumulation is subject to a tax penalty of 25%. If the participant determines that they have an excess accumulation, they should report the tax penalty on IRS Form 5329. For more information about excess accumulations, refer to About Form 5329, Additional Taxes on Qualified Plans (including IRAs) and Other Tax-Favored Accounts.

Exceptions may apply. Contact us if the participant is still employed with the employer sponsoring the plan.

The Required Minimum Distributions brochure provides further details regarding RMDs. This includes when RMDs must be taken, how distributions are calculated and more.

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