Over 70 And Own An IRA?


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Adding money to your IRA or retirement account is the relatively easy part of accumulating assets in tax-deferred retirement plans. The hard part comes later in life when money comes out of those accounts.

Get it right and you will enjoy (figuratively speaking anyway) the lowest possible tax bill. Get it wrong and the taxes and penalties can be hefty.

According to the IRS all IRA owners, and many 401k owners as well, must begin taking Required Minimum Distributions (or RMDs) by April 1 of the year afterthe year they turn 70 ½.

Failing to do so could result in a penalty of 50% of the RMD amount. This is in addition to any tax you may owe on that distribution and any interest you might have incurred by not taking your RMD when you should have.

Here is how it works: 

If you turned 70 on or before June 30thof this year, then you have or will have turned 70 ½ by the end of the year. That means this article applies to you!

Since you turned 70 ½ this year, the IRS says that you must begin taking RMDs by April 1 of next year, 2019 at the latest. But, there is a catch.

If you wait until April 1 of 2019 to take your very first IRA RMD, you will need to take twoRMDs next year. This is because your first RMD (which was really your 2018 RMD) was delayed until April 1 of 2019.

Since 2019 is a new year, you will also need to take your 2019 IRA RMD before 12.31.2019. So, in effect, two IRA RMDs will come out of your IRA in 2019 unless you take your first IRA RMD this year.

Calculating your IRA RMD

Your 2018 IRA RMD will be based on your account balance as of 12.31.2017 and a divisor that changes as you get older. For a newly minted 70 year old, that factor is 27.4.

So, if you turned 70 in the first half of 2018, and had $1,000,000 in your IRA on 12.31.17, your RMD would be $1,000,000/27.4 or $36,496.35.

Most IRA custodians will provide you with your IRA RMD amount for the year. If you own multiple IRAs, be sure to add up the IRA RMD for all these various accounts. You may take your RMD from any one or any combination of IRAs, but the total amount of your RMD must come out by April 1 of the year after you turn 70 ½.

You can get a table of the IRS RMD divisors here.

401(k)s and other retirement plans have separate RMDs and different (but similar) rules and requirements. Consult your 401k plan sponsor, tax professional or financial advisor to determine if you must take an RMD from your 401(k) and what that RMD amount must be.

Roth IRAs have no RMD, so no distribution is required.

Here is my advice: Keep it simple.

If own an IRA and you turned 70 on or before June 30thof 2018, take your first IRA RMD by the end of this year. If you miss it, it’s no big deal. Just be sure take it by April 1 of next year.

If you own a 401(k) or other workplace retirement plan, you may need to take a separate distribution from that account(s). The IRS has great information on the rules around 401(k) and 403(b) RMDs. You can get more information by contacting them directly or by clicking here.

If you have Roth IRAs, no required distribution is necessary.

For more information,talk to your IRA custodian, 401k plan provider, tax professional and/or financial advisor. It’s what they do and they are there to help. If you want to go straight to the source, click here.