Some investment companies estimate that nearly 40% of people over age 70 1/2 who own IRA accounts have yet to make their required minimum distributions as required by law. Although some people wait until the end of the year to maximize the amount of tax-deferred compounding in their IRA account, others simply are unaware of the distribution requirements. Have you made your required minimum distribution (RMD) this year?
Failure to take a distribution from your IRA account greater than or equal to the RMD will result in stiff penalties from the IRS. The penalty is 50% of your undistributed RMD. Depending on the value of your IRA accounts, the penalty could be significant.
To avoid losing part of the value of your IRA to the IRS, it is imperative that you calculate your RMD every year once you reach age 70 1/2 and that you withdraw the calculated RMD from your IRA account by the required due dates. Generally, the amount you must withdraw each year is based on the value of your IRA accounts on December 31st of the previous year divided by the distribution period that corresponds with your age in the Uniform Lifetime Table (i.e., Table III in IRS Publication 590). If you just reached age 70½ this year, you have until April 1, 2014 to withdraw this year’s calculated RMD. In subsequent years, you must make the withdrawals by December 31st.
Keep in mind that 2013 is the last year of a tax provision that allows you to give gifts directly to charities from your IRA accounts and not only count the gift toward your RMD but also exclude the distribution from your income.
Contact Flexible Accounting Services of the Triangle for more information if this situation affects you. Don’t let the IRS assess those stiff penalties on you.