The Perils of Ignoring the “R” in RMDs (Required Minimum Distributions)

RmdsHere’s some practical advice to help you comply with IRS requirements.

If you're older than 70½, then you have until December 31 to take your required minimum distributions (RMDs) from your traditional IRAs and 401(k)s (and you have until April 1 of the next year to take your first RMD). However, many folks delay until the last minute to take the required withdrawal. If you don't take your RMD by the deadline, you'll have to pay a 50% tax penalty for the amount you should have withdrawn.

Here is some additional information to help you meet your deadline for IRA withdrawals and some special rules for 401(k)s.

Start now. You should start initiating the process as soon as possible to give plenty of time for the RMD to be made. Submit the request quickly because the call and request volume for financial service providers can get very high at the end of the year. In addition, if your transaction requires you to sell any holdings, it can take time and may be delayed with the markets closed during the holidays.

Charitable Planning. If you want to give some of the RMD from your IRA to charity, there is good news. You are allowed to give up to $100,000 from an IRA to charity. You can make the transfer anytime during the year. This is called a qualified charitable distribution, and it must be completed by December 31 to qualify as your RMD.

Your first RMD. The date of your first RMD is based on when you turn 70½, not 70. If you turned 70 between January and June, you turn 70½ in 2016 and must take your first RMD from traditional IRAs this year (or you can wait until April 1, 2017 to take the first withdrawal, but you have to take the second withdrawal by December 31, 2017). Folks who turn 70 between July and December 2016, don’t hit 70½ until 2017. Therefore, they’ll need to take their first required withdrawal in 2017 … or they can wait until April 1, 2018 to take the first withdrawal), but have to take their second withdrawal by December 31, 2018.

RMD rules for 401(k)s. If you’re no longer working, you’ll have to take your RMDs from your 401(k) beginning at age 70½—just like for traditional IRAs. However, if you’re still working, you typically can wait on taking RMDs from your current employer’s 401(k) until after you stop working in that job (unless you own 5% or more of the company).

Reference: Kiplinger’s (November 23, 2016) “FAQs About Required Minimum Distributions for Retirement Accounts”


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