Happy 73rd Birthday!

Mistakes to Avoid When Taking Your Required Minimum Distribution

 

When you reach age 73, you're required to withdraw a certain amount of money from your retirement accounts each year. That amount is called a required minimum distribution, or RMD.

 

#1      taking your rmd in the wrong year

The deadline for taking your RMD is December 31^st each year. For your first RMD, and only your first, you can wait to take your RMD until April 1^st of the year after you turn 73.

For example, if you turned 73 in June of this year, you have 2 choices:

• You can take your first RMD by December 31^st of this year; OR
• You can delay taking your first RMD until April 1^st next year (the year after you turn 73)

 

If you choose to wait, you'll have to take your first and second RMD in the same year, which may push you into a higher tax bracket as RMDs are considered income and taxed as such. Regardless what you decide, you must continue taking RMD withdrawals by December 31^st of each year thereafter.

 

#2      you took a withdrawal, but it was not the right amount

Your RMD is based on the balance of your IRA accounts as of December 31^st of the previous year, divided by a life expectancy factor based on your age.  If your spouse is more than 10 years younger, then you will use a different life expectancy.  Not taking the correct amount of Required Minimum Distribution will incur a penalty owed to the IRS. 

The following types of retirement accounts will require RMDs to be taken out each year: Traditional IRA, Rollover IRA, SIMPLE IRA, SEP IRA, Keoghs and most 401(k) / 403(b) plans

 

#4      i forgot about my 401k

This may be OK.  Your RMD amount is based on all outstanding IRA accounts.  If you are still working, you do NOT need to take RMD from your 401(K) at your current employer.  If you have an old 401(K) from a previous employer, then you MUST include that amount in your IRA total. 

 

#5      i only took rmd from one ira account, not all of them

That is OK, so long as you take the total amount required. You can take ALL of the required minimum from one account so long as you take the correct total from all of your IRA and applicable 401(K) accounts combined.

 

#6      i forgot about my roth account

You do not need to take RMD from a Roth IRA.  However, you must take RMD from a Roth 401(K) or an Inherited Roth IRA account.  The amounts will NOT be taxable but are still required to take them out.

 

#7      my ira was converted to a roth

You must take the applicable RMD from the Traditional IRA before you convert it into a Roth. After that, RMD is no longer required to be taken from the converted Roth.

 

#8      i gave money to a charity from my ira

You can give up to $100,000 tax-free to a charity from your IRA.  This will satisfy your RMD for the year.  The caveat is that the withdrawal must be a direct transaction. Meaning, a check from your IRA is payable directly to the charity.  If the transaction shows that the funds were payable to you directly, you will be taxed.

 

#9      taking your rmd from your spouse’s ira or 401k

Even if you and your spouse file a joint income tax return, IRA and 401(k) accounts are owned individually. The RMDs must be calculated and withdrawn separately from each person’s accounts.

 

Now that you understand how complicated your RMD withdrawal can be, allow us to help you process your Required Minimum Distributions correctly so that you can avoid the tax penalty from the IRS. 

 

For more information, please feel free to visit our website: emerald-financialgroup.com or call us!