Article Highlights:
Age | Life | Age | Life | Age | Life | Age | Life | Age | Life |
70 | 27.4 | 80 | 18.7 | 90 | 11.4 | 100 | 6.3 | 110 | 3.1 |
71 | 26.5 | 81 | 17.9 | 91 | 10.8 | 101 | 5.9 | 111 | 2.9 |
72 | 25.6 | 82 | 17.1 | 92 | 10.2 | 102 | 5.5 | 112 | 2.6 |
73 | 24.7 | 83 | 16.3 | 93 | 9.6 | 103 | 5.2 | 113 | 2.4 |
74 | 23.8 | 84 | 15.5 | 94 | 9.1 | 104 | 4.9 | 114 | 2.1 |
75 | 22.9 | 85 | 14.8 | 95 | 8.6 | 105 | 4.5 | 115 | 1.9 |
76 | 22.0 | 86 | 14.1 | 96 | 8.1 | 106 | 4.2 | ||
77 | 21.2 | 87 | 13.4 | 97 | 7.6 | 107 | 3.9 | ||
78 | 20.3 | 88 | 12.7 | 98 | 7.1 | 108 | 3.7 | ||
79 | 19.5 | 89 | 12.0 | 99 | 6.7 | 109 | 3.4 |
Retirement plan owners must separately calculate the RMD amount for each qualified retirement account. However, people who have more than one retirement account of the same type don’t have to take a separate RMD for each. They can aggregate and withdraw the entire amount from just one retirement plan of the same type or withdraw a portion from each plan to satisfy their RMD.
Two tables are not illustrated because of their size: the Joint and Last Survivor Table, which is used to determine RMDs when the sole beneficiary is a spouse who is more than 10 years younger than the plan owner, and the Single Life Table, which is used for certain beneficiary RMD determinations. For table values that are not illustrated above, please call this office.
Roth IRAs – No minimum distributions are required from a Roth IRA while the Roth IRA owner is alive. This means that those who don’t need to utilize their Roth IRA to meet expenses during retirement can leave it untapped for heirs. This exception does not apply to qualified designated Roth 401(k) and 403(b) plans, which are subject to the RMD rules.
Still-Working Exception – An exception to the RMD requirement applies to certain plan participants who are still working. An employee’s required beginning date (RBD) for receiving distributions from a qualified plan is April 1 of the year following the later of the calendar year when the employee reaches age 70-1/2 or the calendar year when he or she retires from employment, with the employer maintaining the plan. The employer’s plan may require the retirement plan participant to begin RMDs under the normal rules, in which case the taxpayer cannot take advantage of the “still working” exception. In addition, this rule does not apply to distributions from IRAs (including those established in conjunction with a SEP or SIMPLE IRA plan) or from qualified plans to more-than-5% owners.
Under-Distribution Penalty – If Jack in the preceding example does not withdraw the $5,859, he would be subject to a 50% penalty (additional tax) of $2,930 ($5,859 x 50%). Under certain circumstances, the IRS will waive the penalty if the taxpayer demonstrates reasonable cause and makes the withdrawal soon after discovering the shortfall in the distribution. However, the hassle and extra paperwork involved in asking the IRS to waive the penalty make avoiding it highly desirable; to do so, always take the correct distribution in a timely manner. Some states also penalize under-distributions.
Even though a qualified plan owner whose total income is less than the return-filing threshold is not required to file a tax return, he or she will still be subject to the RMD rules and can thus be liable for the under-distribution penalty, even if no income tax would have been due on the under-distribution.
IRA-to-Charity Transfers: A provision of the tax code allows taxpayers age 70-½ or over to transfer up to $100,000 annually from IRAs to qualified charities. This provision may provide significant tax benefits, especially for those who would be making large donations to charities anyway.
Here is how this provision, if utilized, plays out on a tax return:
(1) The IRA distribution is excluded from income;
(2) The distribution counts toward the taxpayer’s RMD for the year; and
(3) The distribution does NOT count as a charitable contribution.
At first glance, this may not appear to provide a tax benefit. However, by excluding the distribution, a taxpayer lowers his or her adjusted gross income (AGI), thus allowing him or her to attain certain tax breaks (or avoid certain punishments) that are pegged at AGI levels. Related tax benefits include those related to medical expenses, passive losses, and taxable Social Security income. In addition, non-itemizers benefit from the charitable contribution deduction to offset the IRA distribution.
In many cases, advance planning can minimize or even eliminate taxes on qualified plan distributions. Often, situations arise in which a taxpayer’s income is abnormally low due to losses, extraordinary deductions, or other factors, meaning that taking more than the minimum in a given year can be beneficial. This is true even for those who do not need to file a tax return but who can increase their distributions and still avoid owing any tax.
Beneficiaries – One important issue is naming beneficiaries to your retirement accounts and keeping them current. It is easy to forget to make beneficiary changes due to death, divorce, or other reasons. A good example is that you might not want your ex-spouse getting your retirement account funds.
When someone inherits a qualified plan or an IRA, he or she must generally begin taking RMDs no later than December 31 of the year following the owner’s death.
If you have questions related to RMDs or are a beneficiary of a retirement plan and need to determine your distribution options, please give this office a call.
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