If you own a self-directed IRA (SDIRA), understanding required minimum distributions (RMDs) is an important part of managing your retirement account. While a self-directed IRA gives account holders access to a broader range of investment options than many traditional retirement accounts, it is still subject to many of the same IRS distribution rules.
Below is a high-level overview of RMD requirements from the IRS, when they begin, how they are calculated, and what SDIRA owners should know.
What Are Required Minimum Distributions (RMDs)?
Required minimum distributions are the minimum amount that certain retirement account owners must withdraw from their tax-deferred retirement accounts each year once they reach the applicable RMD age established by the IRS. These withdrawals help ensure retirement savings are eventually subject to federal income tax.
RMD rules generally apply to:
- Traditional IRAs
- Self-directed traditional IRAs
- SEP IRAs
- SIMPLE IRAs
- 401(k) plans
- 403(b) plans
- Other employer-sponsored retirement plans
Do Roth IRAs Have Required Minimum Distributions?
Generally, no. Roth IRAs do not require required minimum distributions during the lifetime of the original account owner. However, inherited Roth IRAs may be subject to RMD requirements depending on the beneficiary and applicable IRS rules.
When Do RMDs Begin?
For most IRA owners, the required beginning date is tied to the year they reach age 73 under current IRS rules.
Your first RMD must generally be taken by April 1 of the year following the calendar year you reach age 73. After your first RMD, all future required minimum distributions must generally be taken by December 31 of each calendar year.
For example:
- Reach age 73 during 2026.
- First RMD deadline: April 1, 2027.
- Second RMD deadline: December 31, 2027.
Taking the first RMD during the following year could result in two taxable distributions occurring during the same calendar year. Because individual tax situations vary, many account holders consult with a qualified tax advisor regarding distribution timing.
How Is an RMD Calculated?
The IRS determines the RMD calculation using:
- Your account balance as of December 31 of the previous year.
- A life expectancy factor published by the IRS.
For most IRA owners, the Uniform Lifetime Table is used.
Different life expectancy tables apply in certain situations, including when a spouse is the sole beneficiary and more than 10 years younger than the account owner or when calculating distributions from an inherited IRA.
Which IRS Life Expectancy Table Applies?
The IRS publishes three primary life expectancy tables used for RMD calculations:
- Uniform Lifetime Table
- Joint and Last Survivor Life Expectancy Table
- Single Life Expectancy Table
The appropriate table depends on your circumstances, including beneficiary designation and account ownership.
Do Self-Directed IRAs Follow Different RMD Rules?
No. Self-directed IRAs generally follow the same RMD requirements as other traditional IRAs.
Although a self-directed IRA allows account holders to own alternative assets such as:
- Real estate
- Private equity
- Promissory notes
- Precious metals
- Other alternative asset classes
…the IRS distribution rules remain the same. The account owner is still responsible for ensuring the full RMD is distributed on time each year.
What If Your SDIRA Holds Illiquid Assets?
This is one area where self-directed IRA owners may want to plan ahead.
Some alternative assets—including real estate, private businesses, or other illiquid holdings—cannot always be liquidated quickly to satisfy an RMD.
Examples of illiquid assets include:
- Rental properties
- Commercial real estate
- Private placements
- Closely held businesses
Understanding the liquidity of assets held within an SDIRA may become increasingly important as the required beginning date approaches.
What Happens If You Miss an RMD?
The IRS may assess an excise tax if the minimum amount is not withdrawn by the applicable deadline.
If an RMD shortfall occurs, the IRS provides procedures that may reduce or eliminate penalties in certain situations when the error is corrected promptly.
What About Inherited IRAs?
Inherited IRA RMD requirements can differ significantly from those that apply to the original account owner.
Factors that may affect inherited IRA distributions include:
- Whether the beneficiary is a spouse
- Whether the beneficiary qualifies as an eligible designated beneficiary
- Whether the SECURE Act's 10-year rule applies
- Whether the original account owner had already reached their required beginning date
Because inherited IRA rules vary based on individual circumstances, beneficiaries should become familiar with the applicable IRS requirements.
Can Qualified Charitable Distributions (QCDs) Count Toward an RMD?
In certain situations, yes.
Eligible IRA owners may be able to satisfy all or part of their required minimum distribution through a Qualified Charitable Distribution (QCD), provided IRS requirements are met. QCD eligibility, annual limits, and reporting requirements are established by the IRS.
Key RMD Terms to Know
Here are a few commonly used terms related to required minimum distributions:
- Required minimum distribution (RMD): The minimum annual withdrawal required by the IRS.
- Required beginning date: The deadline for taking your first RMD.
- Account balance: The prior year-end balance used in the calculation.
- Life expectancy factor: The IRS divisor used to determine the minimum distribution amount.
- Uniform Lifetime Table: The table most IRA owners use when calculating RMDs.
- Inherited IRA: An IRA received by a beneficiary after the original account owner's death.
- Qualified Charitable Distribution (QCD): A qualified transfer from an IRA to an eligible charity that may satisfy all or part of an RMD if IRS requirements are met.
Learn More About Self-Directed IRAs with Mainstar Trust
Mainstar Trust serves as the custodian for self-directed IRAs that hold a wide variety of alternative assets. Whether you're opening your first SDIRA or transferring an existing retirement account, our team can help you understand the account setup process and available account options.
Contact Mainstar Trust to learn more about opening a self-directed IRA and getting started today.