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Are You Approaching 70 ½? Prepare Now to Take Your RMDs

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If you turned 70 ½ in 2019 (or have already passed that milestone) and have a retirement account, failure to take your Required Minimum Distribution (RMD) – or take the correct amount – from your retirement account can result in hefty penalties.

If you are required to take an RMD for 2019, you have until December 31, 2019, to satisfy this requirement.

When to Take First RMD

For IRAs (including SEP and simple IRAs), your first RMD must be taken by April 1 of the year after the year you reach age 70 ½. For example, if you turned 70 ½ on May 22, 2019, you must take your first RMD by April 1, 2020. Please note, you are not required to make RMDs from Roth IRAs.

For 401(k), profit-sharing, 403(b) or other defined contribution plans, you must take your first RMD by April 1 following the time you reach age 70 ½ or retire, whichever is the later in the calendar year. If you own 5% or more of the business sponsoring the plan, then you must begin receiving distributions by April 1 of the year after you reach 70 ½. You may not wait until retirement. If the terms of the plan state that you must begin receiving RMDs once you reach 70 ½, you must follow the terms of the plan.

If you decide to wait until April 1 of the following year to take your RMD, please be aware you are still required to take another RMD by December 31 for that year. For example, if you turn 70 ½ on September 10, 2019, and you take your first RMD on February 20, 2020, you are still required to take another RMD by December 31, 2020, to satisfy your RMD 2020 requirement.

For each subsequent year after you are required to take your first RMD, you must take your RMD by December 31. You are no longer allowed to wait until April 1 of the following year.

Penalties for Not Taking RMDs

If you do not take any distributions in a year which you are required, you generally will have to pay a 50% excise tax on the amount you were required to distribute to yourself. You generally also will have to pay a 50% excise tax if your RMD is not large enough.

How to Calculate

The RMD is calculated by using the account balance as of the end of the immediately preceding calendar year divided by a distribution period from the IRS’ “Uniform Lifetime Table.” Please click here for the table and a worksheet on how to calculate your RMD.

Qualified Charitable Distributions

A Qualified Charitable Distribution is a distribution from an IRA owned by an individual who is required to take an RMD paid directly to a qualified charity organization. Instead of transferring money from your retirement account to your personal bank account, you can transfer money directly to a qualified charity. The amount directly transferred to a qualified charity would not be included in your taxable income, and the distribution satisfies your RMD requirement for the year.  

This strategy works best for people who do not need money from RMDs for daily necessary expenses but are still required to take an RMD because of being 70 ½.

Do you have questions or need assistance in taking your RMD withdrawals? Our team can help you prepare!

Staff Accountant Zack Tassin contributed to this report.

About Ericksen Krentel

Ericksen Krentel CPAs and Consultants, founded in New Orleans, Louisiana in 1960 with offices in New Orleans and Mandeville, believes that serving as the clients’ most trusted adviser is grounded in going beyond the numbers.

That includes helping clients achieve their business and personal financial goals by providing innovative and exceptional services in the following areas: audit and assurance services, tax compliance and planning, outsourced CFO services and business valuations for a variety of industries; employee benefit plan audits; fraud and forensic accounting; business planning; IT consulting; loss calculations; and estate planning.

Learn more at www.ericksenkrentel.com.

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