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Are You Turning 70 This Year?

10/17/2016

 
There are significant penalties if a person does not take a RMD by the required deadline.
If an account owner fails to withdraw their RMD or fails to withdraw the full amount of the RMD by the applicable deadline, the amount of the RMD not withdrawn is taxed at 50%. 

The penalty may be waived if the account owner establishes that the shortfall in distributions was due to reasonable error and that reasonable steps are being taken to remedy the shortfall.

If you will reach 70½ years of age this year, you are subject to RMD.
Required Minimum Distributions (RMDs) generally are minimum amounts that a retirement plan account owner must withdraw annually, starting with the year they reach 70½ years of age or, if later, the year in which they retire. However, the RMD can be delayed until the very next April 1st after the 70½ age mark or the date when the account holder retires. After that time, including the year in which the account holder withdrew their first RMD, RMD withdrawals are due by December 31 of each year. 

For Roth IRAs, there are no MRDs for the original owner. Also, if you have both kinds of IRAs, withdrawals from a Roth IRA will not help satisfy your annual MRD requirement for your Traditional IRA.

How is the amount of the required minimum distribution calculated?
These rules are complicated. If you are subject to RMD, check with your plan administrator for assistance on calculating your RMD. However, the account owner or beneficiary may withdraw more than the RMD amount. 


How MRDs are Taxed
MRDs are taxed as ordinary income for the tax year in which they are taken and will be taxed at your applicable individual federal income tax rate. MRDs may also be subject to state and local taxes. If you made nondeductible contributions to your IRA, you must calculate your MRD based on the total balance, but your taxable income may be reduced proportionately for the after-tax contributions. 



Can an account owner just take a RMD from one account instead of separately from each account?
An IRA owner must calculate the RMD separately for each IRA that he or she owns, but can withdraw the total amount from just one or more of the IRAs. Similarly, a 403(b) contract owner must calculate the RMD separately for each 403(b) contract that he or she owns, but can take the total amount from just one or more of the 403(b) contracts. RMDs required from other types of retirement plans, such as 401(k) and 457(b) plans have to be taken separately from each of those plan accounts.

Confused? Have more questions?

Contact us for help in answering your questions by phone at (802) 490-2534 or e-mail us at Faith@TerwilligerCPA.com


From: IRS, Forbes, and Fidelity




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