Schedule Your Required Minimum Distributions (RMDs) Early

Required Minimum DistributionIf you are at least age 70½ this year, you must take required minimum distributions (RMD) from any Traditional IRA, SEP IRA, SIMPLE IRA, and Self-Directed IRA that you own. You may also need to take RMDs from any IRA or other retirement account that you inherited, and from amounts you hold under an employer-sponsored retirement plan. While your RMD for the year must generally be withdrawn by the end of the year, scheduling it in advance can help to make sure you meet the deadline by which it must be withdrawn.

Your Required Minimum Distribution (RMD) Deadline 

Generally, your first RMD must be taken by your required beginning date (RBD), which is April 1 of the year that follows the year in which you reach age 70½. This means that if you reach age 70½ in 2013, your first RMD must be taken by April 1, 2014. All other RMDs must be taken by December 31 of the year to which the RMD applies. As such, if 2013 is not your fist year for RMDs, or if you need to take an RMD from an inherited IRA, that amount must be distributed by December 31, 2013.

Note: If you have funds in an account under an employer plan, such as a 401(k), 403(b), governmental 457(b), or pension plan, and you are still working for the company which offers the plan, you may be allowed to delay starting your RMD past age 70½, until after you retire. Check with the plan administrator to determine the RMD rules that apply to the plan.

If you miss your RMD deadline, the RMD amount not withdrawn by the deadline is subject to an IRS assessed excess accumulation penalty of 50 percent. For instance, if your RMD for the year is $10,000 and you took only $2,000 by the deadline, you will owe the IRS a penalty of $4,000 on the $8,000 which was not taken by the deadline.

Calculating Your Required Minimum Distribution (RMD)

Your 2013 RMD amount is determined by dividing your December 31, 2012 fair market value (FMV) by your life-expectancy factor which is obtained from IRS provided Life expectancy tables. Your FMV must be adjusted by adding any outstanding rollovers, outstanding recharacterizations and outstanding transfers.

  • Outstanding rollovers are distributions taken from an IRA during one year and rolled-over to the same or another IRA during the following year.  For instance, a distribution taken in December of one year, and rolled over in January or February of the following year. These rollovers are required to be completed within 60-days of receipt.
  • An outstanding recharacterization is a Roth conversion that is recharacterized in the year that follows the year in which the conversion was done. For example: A conversion that is done in 2012 and recharacterized in 2013 is an outstanding recharacterization for your December 21, 2012 FMV.  Recharacterizations are required to be completed by your tax filing deadline, including extensions. If you file your tax return by the due date, you receive an automatic six-month extension, bringing the deadline to October 15 if you file on a calendar year.
  • An outstanding transfer occurs when assets are being transferred between two IRAs and the assets leave the delivering IRA in one year and are credited to the receiving IRA in the following year.

The Custodian that held your IRA as of December 31 of 2012 is required to provide you with an RMD statement for 2013, which must include your calculated RMD amount or an offer to calculate the RMD upon request. The RMD statement requirement does not apply to Inherited IRAs.

Even if your Custodian calculates your RMD amount, you should have a professional double check the calculation, as your Custodian is allowed to make certain assumptions that could result in inaccurate results.

Schedule Your Required Minimum Distribution (RMD) Now

Even if you do not want to take your RMD now, you may still consider making arrangements to ensure it is distributed by the deadline. This can be accomplished by providing instructions to your IRA custodian now, to schedule your distributions for a future date. Alternatively, you may schedule amounts to be withdrawn periodically throughout the year. In such cases, care must be taken to ensure sufficient cash is available to cover scheduled distribution amounts.


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What to Do if You Missed Your Required Minimum Distribution (RMD) Deadline

Required Minimum DistributionIf you are subject to the required minimum distribution (RMD) for 2013 and do not take your RMD amount by the deadline, you will owe the IRS an excess accumulation penalty of 50% of the RMD shortfall. The good news is that the penalty can be waived if the right steps are taken. The following highlights the RMD rules and the steps that can be taken if you missed your RMD deadline due to reasonable cause.

When is the Deadline for Taking an RMD?

Let’s start by determining the deadline by which an RMD must be taken from a retirement account.

If you are the Retirement Account Owner

The deadline for taking a required minimum distribution (RMD) is usually December 31 of the year to which the RMD applies. However, there are two exceptions:

  • If you reached age 70½ during 2013, the deadline for taking your 2013 RMD is April 1, 2014. All subsequent RMDs must be withdrawn by December 31 of the year to which the RMD applies.
  • If you are older than age 70½ in 2013, and have assets in a retirement plan that allows RMDs to be deferred past age 70½ until you retire, your first RMD for those assets is due by April 1 of the year following the year that you retire. This option can apply only to qualified plans, 403(b) plans and 457(b) plans, and cannot be made available to individuals who own more than five percent of the business that sponsors the plan (5% owners).

If You are a Beneficiary

If you own an inherited retirement account, you are required to withdraw beneficiary-RMD amounts by the end of 2013, if any of the following applies:

  • You are subject to the life expectancy rule and the retirement account owner died before 2013.
  • You are subject to the five year rule and the five year period expires at the end of 2013.

Under the five year rule, distributions are optional until the end of the fifth year, at which time the entire balance must be withdrawn from the account.

What to do if You Missed Your RMD Deadline

If you missed your RMD deadline, you owe the IRS an excess accumulation penalty of 50% of the shortfall. For instance, if the RMD for 2013 is $10,000 and only $2,000 is withdrawn by the deadline, you will owe the IRS an excess accumulation penalty of $4,000 ($8,000 x 50%). In such cases, you have two choices:

  1. Pay the IRS the penalty. This is calculated on IRS Form 5329 (under the section labeled “Additional Tax on Excess Accumulation in Qualified Retirement Plans (Including IRAs)” and reported in the ‘other taxes’ section of your tax return (Form 1040). Important note: You cannot file Form 1040A or 1040EZ if you file Firm 5329. Instead, you must file Form 1040.
  2. Ask the IRS to waive the penalty. The IRS will waive the penalty, if you can show ‘reasonable cause’ for not taking the RMD. If you feel that you qualify for a waiver, you should File Form 5329 and attach a letter of explanation to the IRS.

When applying for the waiver, you need to take the missed required minimum distribution (RMD) amount as soon as possible.

Professionals Can Help

If you need help with your RMD, you should consult with a professional who is proficient in the area of distribution-planning for retirement accounts.  While the calculation of your RMD might seem simple, there are factors that must be taken into account to ensure the calculation is correct. Professionals will help to ensure that these are not overlooked when handling your case.


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