April 1 – It May be Time to Take Required Minimum Distributions

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03.20.17 | T&E Chat

No, you cannot keep retirement funds in your account indefinitely. If you reached age 70½ in 2016, you may need to take a Minimum Required Distribution (MRD) attributed to 2016 for your qualified retirement plans.

Generally, you must start taking withdrawals from your IRA, SIMPLE IRA, SEP IRA, or retirement plan account when you reach age 70½. Roth IRAs do not require withdrawals until after the death of the owner.

Your MRD is the minimum amount you must withdraw from your account each year.

• You can withdraw more than the minimum required amount.
• Your withdrawals will be included in your taxable income except for any part that was taxed before (your basis) or that can be received tax-free (such as qualified distributions from designated Roth accounts).

The MRD for any year is the account balance as of the end of the immediately preceding calendar year divided by a distribution period from the IRS’s “Uniform Lifetime Table.” A separate table is used if the sole beneficiary is the owner’s spouse who is ten or more years younger than the owner.

Moving Forward

For each subsequent year after your required beginning date, you must withdraw your MRD by December 31.

The first year following the year you reach age 70½ you will generally have two required distribution dates: an April 1 withdrawal (for the year you turn 70½), and an additional withdrawal by December 31 (for the year following the year you turn 70½). To avoid having both of these amounts included in your income for the same year, you can make your first withdrawal by December 31 of the year you turn 70½ instead of waiting until April 1 of the following year.

Consequences If You Don’t Take Your MRD

If you do not take any distributions, or if the distributions are not large enough, you may have to pay a 50% excise tax on the amount not distributed as required.

If you have questions about taking your MRD, contact me at SDitman@BerdonLLP.com or call your Berdon advisor.

Scott T. Ditman, a tax partner and Chair, Personal Wealth Services at Berdon LLP, advises high net worth individuals and family/owner-managed business clients on building, preserving, and transferring wealth, estate and income tax issues, and succession and financial planning.