In the latest Weekly Wright Report:
- Don’t Forget Dec. 31 Deadline for Most Retirees to Take Required Minimum Distributions – read now
Don’t Forget Dec. 31 Deadline for Most Retirees to Take Required Minimum Distributions
On December 11, 2019, the IRS issued a reminder to taxpayers that most retirees who were born before July 1, 1949, must take required minimum distributions (RMDs) from their retirement plans by December 31, 2019. First-time RMD recipients (those individuals who turned 70 ½ in 2019) have a special deadline of April 1, 2020. Retirees who took their first RMD during 2019 must receive a second one by the normal deadline. If an individual waits to take the 2019 distribution in 2020, he or she will have to take another withdrawal before December 31, 2020. This will increase their taxable income in 2020 potentially subjecting the individual to higher tax rates and Medicare premiums.
The required distribution rules apply to owners of traditional Individual Retirement Arrangements (IRAs), traditional Simplified Employee Pension (SEP) IRAs, and Savings Incentive Match Plans for Employees (SIMPLE) IRAs, as well as to participants in various workplace retirement plans, including tax code Section 401(k), Section 403(b), and Section 457(b) plans. Roth IRAs don’t require distributions while the owner is alive. The RMD is based on the taxpayer’s life expectancy and account balance. An IRA trustee or plan administrator must report the amount of the RMD to the IRA owner. Where multiple IRAs are involved, the RMD must be calculated separately by account but may be drawn from any or all of such accounts. RMDs from workplace retirement plans, however, must be taken separately from each account.
Not taking your RMD will subject you to a penalty tax of 50% of the amount not taken. This penalty tax is in addition to the ordinary income tax applied to the withdrawal.
Individuals age 70 ½ or older may distribute up to $100,000 tax-free from their IRAs directly to certain charitable organizations without including the distribution in gross income. The entire distribution must qualify as a deductible charitable contribution, disregarding the percentage limitations on charitable contributions. The individual does not receive a charitable deduction but the distribution satisfies the RMD or a portion of it, and the individual is not taxed on the amount distributed to the charitable organization.
Be sure to talk to your financial advisor or accountant about the planning opportunities surrounding the Required Minimum Distributions.
Want more? Visit the Weekly Wright Report page to browse past issues.