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Are You Turning 70 1/2 in 2019? Don’t Forget to Take Your First RMD

January 22, 2019

If you’re turning 70 ½ this year, the IRS has a special gift for you. You must take your first RMD from your IRA. Read on.

Celebrating your 70 ½ birthday in 2019? The IRS will require you to take a so-called Required Minimum Distribution "RMD", before April 1, 2020.

Do RMDs come from traditional or Roth IRAs?

You must take RMDs from your traditional IRAs (but not your Roth IRAs.) Why? Paternalistically, the tax rules require minimum annual distributions be made to help assure that IRAs are used primarily to provide for retirement, rather than as a family tax shelter for future generations. Realistically, the government needs the tax revenue.

Attention 70 ½ year olds....

If you are 70 1/2, your first required distribution is this year. But this distribution can be made as late as April 1, 2020. For each year thereafter, the required minimum distribution must be made annually by December 31st. If you wait until April 1, 2020 to take your first RMD, you will have to take two distributions in 2020 - one for 2019 and one for 2020. This bunching on income could negatively impact your income taxes. If so, you may want to take your first distribution before December 31, 2019.

Calculate your RMD

Annually the required minimum distribution is calculated by dividing the IRA balance as of December 31st of the preceding calendar year by the applicable life expectancy factor. More good news - the IRS thinks you will live another 27.4 years! You are going to live to almost 100! Complications, in the computation, may arise if you have more than one IRA account. The RMD is based on the total of all the accounts, but you can take the funds from any account, or a combination of the accounts.

How do I report this?

IRA trustees are required to report the required distribution amount to IRA owners, or to calculate it for the owners on request, by January 31st of the year the distribution is required. However, as the required minimum distribution can be withdrawn from whichever IRA you choose, you are responsible for ensuring the proper amount is timely received. You could be hit with a 50% penalty tax if you don't withdraw the required minimum amounts each year. It is your responsibility to take the RMD, not the Trustees’.

Any other requirements?

Annual distributions are also required to be made from your employer's qualified plan. Generally, the plan administrator is responsible for calculating and timely paying the RMD amount from qualified retirement plans.

Happy half birthday! Don’t forget to take your RMD, you face penalties for noncompliance. Questions? Don’t hesitate to call us.

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