December 31 Deadline Approaches For Mandatory Distributions From IRAs.

The December 31 deadline for taking required minimum distributions (RMDs) from individual retirement accounts is approaching.  One either takes the mandatory RMD from their IRA by year end or suffers the 50% excess accumulations penalty (plus interest!) on any required withdrawals that aren’t taken.

Generally, an IRA owner who is at least age 70½ must take an RMD from an IRA by December 31, 2014, with one exception. If the IRA owner happened to reach age 70½ in 2014, he can delay taking the 2014 RMD until April 1, 2015. But remember, if the distribution is delayed to next year, the IRA owner will have to take two distributions in 2015. (For those with substantial taxable income, delaying the 2014 distribution may have a significant impact on their income taxes for 2015, so proper planning is a must.)

So, who has to take an RMD from an IRA before year end? Let’s take a look at some of the more common situations:

If the owner of a traditional IRA is at least age 70½ by December 31, he must take a distribution. (But, if he did reach age 70½ this year, he can delay taking this year’s RMD until April 1, 2015.) (Roth IRA owners do not have to take RMDs – a prime benefit of a Roth IRA.)

For a non-spouse beneficiary of a traditional IRA, an RMD must be taken by year end – regardless of her age – if the account owner died before 2014.

For the surviving spouse who is the sole beneficiary of a traditional IRA, an RMD must be taken in 2014 if the deceased account owner would have reached age 70½ this year. If the account owner died in 2014 and he was age 70½ or older, the spouse beneficiary will have to take an RMD in 2015, the year after the account owner’s death.

If a taxpayer is under age 59½ and has set up a §72(t) distribution plan (“Series of Substantially Equal Periodic Payments”) from her IRA, she must take her full distribution by year end.

If an IRA owner died after April 1, 2014, and he was at least age 70½ at the time of death, he will have an RMD for 2014. The RMD must be taken by the account beneficiary if a beneficiary was designated. If no beneficiary was designated, the RMD is payable to the IRA owner’s estate.

We have focused only on traditional IRA accounts in this post. Special rules apply with regard to RMDs from multiple IRA accounts, and RMDs from other types of retirement accounts such as 401(k) and 403(b) accounts, which simply cannot be addressed here in a single post.

The rules governing required minimum distributions from IRAs and other retirement accounts are many, complex, and tricky.  If you are not sure whether you must take an RMD from an IRA or other type of retirement account this year, or how much to take out if you do, please consult with your tax advisor, or give me a call. I can help.