By: Beth M. Cwik
The holidays are here and the hustle and bustle of family gatherings and shopping is in the forefront of our mind. This is also a good time to review our finances and in particular, whether or not we need to take a required minimum distribution.
Even if you are still employed, you must take your first required minimum distribution (“RMD”) by April 1 of the year following the year in which you turn 70 ½. You can figure out what your RMD will be by looking at your account balance(s) as of the end of the year and dividing that amount by your life expectancy factor which is provided by the IRS at https://www.irs.gov/publications/p590b/index.html. All future RMDs must be taken by December 31 of that year. If you have multiple IRA accounts, you can take your distribution from each or any of the accounts. You may be able to set-up an automatic RMD plan with your IRA custodian and the custodian will calculate your RMD and send you a check.
It is very important to take your RMD every year in order to avoid the 50% penalty based on the distribution not made or an insufficient amount taken. In the event there is an oversight and the RMD is not made or an insufficient amount taken, it is important to correct the mistake as soon as discovered and file the Form 5329 for each year missed with a detailed explanation as to why the oversight. Even though the penalty will be assessed, the taxpayer can request an abatement of the penalty which is most often granted.
The rules with regard to what happens with the RMD when an account owner dies can be quite complicated depending on if the IRA rolls to a spouse or other person. If a person other than a spouse is named as a beneficiary of an IRA, they will generally be required to take the RMD by December 31 of the year following the year of death. However, if the deceased owner did not properly take the RMD prior to death, then the designated beneficiary must take that amount prior to December 31 of the year of death.
This is also a good time to check your beneficiary designations. Leaving your IRA to charity at your death is a great planning tool in that it not only avoids the beneficiary’s share of the income tax, in the event you have a taxable estate, it also avoids the estate tax.