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October 13, 2012

Year-End IRA Tip: Required Minimum Distribution Deadline

With two exceptions, you will need to take a required minimum distribution (RMD) from your retirement account by December 31 if you are at least age 70 ½. This is also required if you inherited a retirement account before January 1 of this year and will be taking life-expectancy distributions. For purposes of this rule, retirement accounts include traditional IRAs, SEP IRAs, SIMPLE IRAs, Roth IRAs, 403(b) accounts, 457(b) accounts, and qualified plan accounts- such as 401(k) accounts. The two exceptions to the age 70 ½ rule are:
1.If you reached age 70 ½ this year, you get an automatic extension until April 1 of next year to take your RMD which is due for this year. However, if you wait until next year, you will have two RMD amounts to add to your income as you will be required to take both the postponed RMD as well as the current year’s RMD which will be due to be taken by December 31. For instance, if you reach age 70 ½ in 2012, and wait until 2013 to take your 2012 RMD, you will need to take the 2012 and 2013 RMD in 2013.
2.If you have money in a qualified plan, 403(b) or 457(b) plan and you are still working for the employer offering the plan, you need not begin to take your RMDs until after you retire; providing the plan offers that deferment option and you are not a five percent owner of that business.
If you inherited a retirement account, you are subject to the life-expectancy rule if the retirement account owner died before the required beginning date and (a) the governing document defaults to the life expectancy payment option which is the case for most documents, or (b) you elected the life-expectancy option. You are also subject to the life expectancy rule if the retirement account owner died on or after the required beginning date (RBD). See our IRA Beneficiary Options Quick Reference for more information.
If You Miss This Deadline…
If you miss the deadline to take your RMD amount, you will owe the IRS an excess accumulation penalty of 50% of the RMD shortfall. For instance, if your RMD is $10,000 and you withdrew only $2,000 by December 31, you will owe the IRS $4,000 (50% of $8,000).

Written By

Denise Appleby

Denise is CEO of Appleby Retirement Consulting Inc., a firm that provides IRA resources for financial/ tax/legal professionals. She has over 20 years of experience in the retirement plans field, which includes training and technical consultation.

Denise writes and publishes educational /marketing tools for advisors; available at Denise co-authored several books on IRAs

Denise is a graduate of The John Marshall Law School, where she obtained a Masters of Jurisprudence in Employee Benefits, and has earned 5 professional retirement designations.
She has appeared on numerous media programs, sharing her insights on retirement tax laws.


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