Have you read our blog, “When to Take Your Required Minimum Distributions From Your Retirement Accounts”? - Check it out before year-end.

You can’t stockpile money in retirement accounts forever. The IRS requires certain individuals to take required minimum distributions (RMDs) each year and, of course, pay taxes on the distribution. The rules are complicated, and failure to comply can lead to fines of up to 50% of the amount you were required to withdraw but didn’t. Here are the basics.

Seniors and Retirees

For traditional IRAs, RMDs must begin by April 1 of the year following the year in which you turn age 70 ½. Check out our blog, “When to take your Required Minimum Distributions from your retirement account” for more details.

Similar RMD rules also apply to employer-sponsored retirement plans, such as 401(k) and profit sharing plans. But, if you continue to work full-time, generally you may be able to defer RMDs from these plans until you retire, as long as....

1. You don’t own 5% or more of the company sponsoring the plan, and
2. The deferral option is permitted under your plan document.

Roth IRAs, while the original owner is alive, are not subject to the RMD rules. So, rolling over traditional IRA assets to a Roth IRA is one way to avoid the RMD rules. However, the amount rolled over is subject to income taxes in the year rolled. Do not do this without seeking advice.

Inherited IRA Accounts

Different rules apply to inherited IRA retirement accounts. To further complicate matters, the rules are slightly different depending on whether the original owner died before or after RMDs began and who inherits the account (spousal vs. nonspousal beneficiaries and trusts).

Generally, the entire amount of the owner’s benefit must be distributed to the beneficiary who is an individual either 1) within five years of the owner’s death, or 2) over the life of the beneficiary starting no later than one year following the owner’s death. Spouses typically have greater flexibility than nonspousal beneficiaries, including the ability to treat the account as his or her own.

We Can Help

The rules for RMDs are complicated. Fortunately, our experienced tax specialists understand the subtle nuances of the IRS rules and can help ensure that you are in compliance. But time is running out and any do-it-yourself errors can be costly. Questions? Contact us today.