IRA Required Minimum Distributions (RMDs)
Taxpayers reaching 70 ½ years of age are required to take minimum distributions from their traditional IRA accounts (other retirement accounts also require distributions). There are no required distributions for owners of Roth IRAs.
When must RMD begin?
Your first distribution must be taken by April 1 of the year following the year you reach age 70½. All subsequent RMDs must be made by December 31 of the year to which the distribution applies.
Penalty for failure to take RMDs
A severe penalty tax is imposed for failure to take RMDs. The penalty is 50 percent of the amount by which the RMDs exceed the actual distributions taken for the year. If you didn’t take your $5,000 RMD in 2017, your penalty is $2,500 (50 percent of $5,000).
If there was reasonable cause for failing to take the RMD, then you can petition the IRS for relief from the penalty.
How is RMD calculated?
The RMDs are calculated by dividing the prior December 31 account balances by a factor in the IRS’s life expectancy tables. It’s too technical for further discussion in this column. However, the calculated RMD amount must be distributed before the end of the year.
Qualified Charitable Distributions (QCD)
Congress did a good deed by allowing us to make a charitable distribution directly from our IRA. These charitable distributions are treated as distributions for RMD purposes. However, unlike normal RMDs, the QCD is not included in gross income; thereby, reducing your AGI and taxable income. A lower AGI could reduce Medicare premiums and other AGI-related phaseouts.
It is likely that the new tax laws will cause many taxpayers to claim the standard deduction rather than itemize their deductions. Because the contribution is excluded from income rather than deducted as a charitable contribution, taxpayers who don’t itemize can get the full benefit of the charitable contribution. The tax consequences of retirement don’t get easier. They require advanced planning toensure tax liabilities are minimized.
Please contact me to schedule a free consultation to discuss your 2017 tax return and tax planning for 2018 vis email: steve@chegwincpa.com or call 661-253-0270.
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