If you were born in 1952, or know someone who was, you better talk to your tax advisor immediately about the infamous Required Minimum Distribution (RMD) regulations. Beginning the year you turn 73 years of age, you are generally required to start taking withdrawals from your traditional IRA accounts and other similar accounts whether you want to withdraw or not.
Withdrawals from 401(k) workplace plans may be delayed until retirement, unless the account holder is the owner sponsoring the plan. Roth IRA withdrawals are not required during the account holder’s lifetime—only after death.
As you can see, this RMD nonsense is confusing. Talk to a trusted tax advisor now. Your plans for retirement can really change when you start taking out yearly distributions.
Some Key Facts from the IRS:
1– For information on the regulations read IRS Publication 590-B. This lengthy and wordy compilation of information will explain the plans.
2– Taxpayers who turn 73 this year must withdraw their first RMD by April 1 of next year. After that, you will withdraw the proper amount by December 31st of each year.
3– There are tables in Publication 590-B to inform a taxpayer of the amount to withdraw each year. Note that there is an additional table for anyone who is married to a spouse who is ten years younger. The percentages are lower.
4– If you do not take out the correct amount, the penalty is 25% (reduced to 10% if withdrawn within 2 years).
5– You can take more, but any amount withdrawn is taxed at ordinary tax levels by the Franchise Tax Board and IRS.
6– In the year you turn 74, you will need to make two withdrawals—one by April 1st for the previous year, and another by December 31st for that year. You might want to pay year one in the year you turn 73 because tax rates might climb if you had two distributions in one year.
7– Can the penalty be waived? Yes, the penalty may be waived if the account owner establishes that the shortfall in distributions was due to reasonable error, etc. You must file another document, Form 5329 and attach a letter of explanation.
8– These comments are obviously not from a CPA. I am a RMD filer of many years, but you must check with a professional who knows these laws completely. And yes, I understand your confusion and anger, you are preaching to the choir.
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