The IRS requires that certain taxpayers take mandatory distributions from their individual retirement accounts (IRAs) before the end of each calendar year. If you are not sure who must take IRA distributions before December 31 of this year, read on to learn more.
Individuals who are 70 1/2 years old by December 31—that is, taxpayers born before July 1, 1944—must begin taking distributions from their IRAs. The IRS requirement for certain taxpayers to begin withdrawing funds from retirement accounts is known as required minimum distributions, or RMDs. This requirement applies to both IRAs as well as retirement plans through a place of work, including 401(k), 403(b), and 457(b) plans. The required mandatory distribution requirements does not apply to Roth IRAs.
The trustee of an IRA must provide to the owner of an IRA the amount of the required mandatory distribution or offer to calculate the amount for the owner. The trustee typically provides this information to the IRA owner on Form 5498 in Box 12b.
The amount of the required mandatory distribution for a given taxpayer is based on the life expectancy of the taxpayer as of December 31 of the tax year—that is, December 31, 2014, presently—and the retirement account balance of the taxpayer. The retirement account balance used in the required mandatory distribution calculation is report on Form 5498 in Box 5.
Are there any exceptions to the required mandatory distribution?
There are only two exceptions to this requirement. The first is for those who reached age 70 1/2 during 2014—that is, individuals born after June 30, 1943, and before July 1, 1944. These individuals who are receiving required mandatory distribution distributions from their retirement accounts for the first time are permitted to wait until April 1, 2015 to receive their first retirement distribution.
Whether or not a taxpayer elects to use the exception during the first year of their required mandatory distribution, they must receive all subsequent required mandatory distributions by December 31 of each calendar year. For example, if a taxpayer reached 70 1/2 during 2014 and elect to defer his initial required mandatory distribution until April 1, 2015, the taxpayer must receive his next required mandatory distribution by December 31, 2015.
Taxpayers who elect to wait until the first three months of 2015 to receive their retirement distributions are still abiding by the required mandatory distribution requirement. However, any retirement distributions received in 2015 will be taxable on the taxpayer’s 2015 income tax return.
The second exception may apply to certain taxpayers regarding workplace retirement plans. If the taxpayer is still working and the taxpayer’s workplace retirement plan allows it, the taxpayer can elect not to receive any required mandatory distribution until the April 1 of the year after the taxpayer stops working.
Is the required mandatory distribution the most I can withdraw from my retirement account?
The required mandatory distribution is the minimum amount that a taxpayer must withdraw from a retirement account. The taxpayer can elect to withdraw more than the minimum amount required as part of the required mandatory distribution.
What happens if I fail to withdraw the required mandatory distribution by the required date?
If a taxpayer does not withdraw the required mandatory distribution or does not withdraw enough to meet the required minimum, the IRS will impose a 50% excise tax on the amount between the amount withdrawn and the required mandatory distribution.
Who can help me if I have questions about IRA distributions and the tax implications?
A tax attorney can answer your tax-related questions about IRA distributions, including if you must take IRA distributions before December 31.
By calling the phone number located at the top of this web site or completing the form below, you can speak with a tax attorney about your situation. As the first consultation is free of charge, you should get the help you need today with your taxes before the end of the year.
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Mark has been a contributor to legal web sites related to bankruptcy, tax, and criminal law since 2011. He has an Accounting degree from Texas A&M University.