Who must take a distribution?
Starting at age 70½, owners of most types of retirement plans must begin making withdrawals, also known as required minimum distributions (RMDs), from their accounts. Those plans affected include IRAs, SEP IRAs, SIMPLE IRAs and Rollover IRAs. This rule also applies to everyone who has inherited a plan as a beneficiary. However, there is no RMD requirement for Roth IRAs during the lifetime of the original owner.
When must you take your first distribution?
You must begin taking your RMD by December 31 of each calendar year, beginning with the year you reach 70-1/2. However, for your first distribution, you have until April 1 of the year after you turn 70-1/2 to take it. If you take your first distribution between January 1 and April 1 of that year, you must take your second distribution on or before December 31 of the same year. Then, for each subsequent year, you must take your minimum distribution on or before December 31.
Generally, you will owe ordinary income taxes on your distribution in the year you receive it. If you made non-deductible contributions to your IRA, a portion of your distribution will be tax free.
What if you don’t take your distribution in time?
It is extremely important to set up and maintain a payment schedule that complies with government guidelines. Failure to take RMDs could result in an IRS-imposed penalty equal to 50% of the amount that should have been withdrawn.
You still have until April 1, 2016 to take your initial 2015 distribution.
If you have any questions, please contact your Alerding CPA Group representative at 317-569-4181 or visit our website www.alerdingcpagroup.com.