Required minimum distributions begin at 73
Do you have DCP or Plan 3? If so, keep in mind that federal law requires you to withdraw a minimum amount from your investment account when you reach age 73 if you are separated from employment.
The DRS record keeper, Voya, calculates this required minimum distribution (RMD) and pays out this amount to you automatically each year. You can also take out your own withdrawals to meet the minimum. Completing the annual minimum withdrawal, either on your own or automatically through the record keeper, helps you avoid the tax penalty (up to 25%) the IRS can impose if the minimum amount is not withdrawn.
Why do DCP and Plan 3 have an RMD?
Your pretax DCP contributions and all Plan 3 contributions are made before your income is taxed. This means the IRS is owed taxes on those money sources. The annual minimum distribution ensures the IRS receives the income tax monies owed. Without the annual distribution, the IRS could impose an additional tax penalty for funds not withdrawn.
Who is not required to withdraw an amount?
- Contributing employees: If you are still contributing to your plan, the RMD withdrawal is optional.
- Plan 1 and Plan 2 customers: If you are a Plan 1 or 2 member who is receiving a monthly pension benefit, you don’t need to take an RMD from those plans.
- DCP Roth account balances: As of 2024, the DCP RMD applies only to DCP pretax balances, not DCP Roth balances, which are already taxed.
How do you calculate your RMD?
To calculate your RMD amount, start with your previous year’s Dec. 31 investment account balance. Next locate your age in the RMD tables. Take your total investment account balance and divide it by the period that corresponds with your age. The resulting number is your required minimum amount.
If you are a member of Plan 3 and DCP, you have two investment accounts that are subject to minimum distribution requirements, and you calculate these separately.
How do you make changes to your RMD?
While the required minimum distribution is issued to you automatically, you do have options to make changes to the withdrawal. To find out more, contact the DRS record keeper at 888-327-5596 or visit the RMD Section of the IRS website.
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The Office of the State Actuary prepared this example to assist DRS with developing a general educational resource.
