It’s that time of year again: It’s time to take those required minimum distributions from your self-directed IRA or other tax-deferred retirement account. If you made deductible contributions to an IRA, self-directed IRA, SEP, 401(k) or other tax-deferred retirement account, and you are age 70½ or older, you may be required to withdraw some income from your account – and pay income taxes on that income.

The reason: Fairness. When Congress passed the Employee Retirement Income Security Act of 1974, the landmark legislation that led to the rise of the IRA and 401(k) accounts, they wanted to ensure that taxpayers could not defer taxes on their own contributions indefinitely. Taxpayers are allowed to let their accounts accumulate tax deferred until the year after the year in which they turn age 71½. At that time, they must begin taking distributions and pay Uncle Sam his due.

• For those with SEPs, SIMPLE IRAs, and traditional IRAs, including self-directed IRAs, you have until December 31st to complete your RMDs for 2017.

• For those who inherited an IRA from someone other than a spouse, you must also complete your RMDs prior to December 31st. This is true regardless of your age.
• If you turned age 70½ in 2017, you have until April 1st of 2018 to take your first RMD. But you must take a second RMD by the end of next year.
• If you inherited a non-spousal IRA in 2017, you also have until April 1st of 2018 to take your first RMD.

There are no RMD requirements on Roth IRAs or self-directed Roth IRAs, nor on designated Roth accounts within a 401(k) or self-directed 401(k).

The penalty for failing to take a required minimum distribution is severe: As much as 50 percent of the amount that should have been distributed. So it’s important you stay on top of the RMD requirements.

If you have an RMD to make, contact us right away to start the process.

Self-Directed IRAs and Illiquid Assets

Many self-directed IRA investors have illiquid assets in their retirement accounts. If you are facing an RMD on a tight deadline and you can’t find a willing buyer for your asset at a fair price so you can take out cash, you can also take an in-kind distribution. This simply involves retitling assets out of the IRA and under your name, personally. However, the IRS still needs to put a number to the value of this transaction in order to calculate the taxes due. In some cases, you may need to get an independent valuation of the asset or property that you are distributing to yourself.

Alternatively, you could convert some assets to a Roth – paying taxes now, but securing tax-free growth for as long as you live in the future.