Is It Time to Start Taking Distributions from Your IRAs?
Written by Ana Perez-Arrieta
If you turned 70½ in 2013, you have until April 1, 2014 to take your first required minimum distribution (RMD) from your retirement account, such as a 401(k) or IRA. Note that this rule generally applies even if you’re still working. IRA owners over the age of 70½ must take their distribution on or before December 31 of each year. Thus, it’s only the year in which you turn 70½ that you have a few extra months to take your RMD.
But, if you turned 70½ last year and you wait to take the first RMD in 2014 before the April 1 deadline, don’t forget that you still have to take the RMD for this year before the December 31 deadline. In essence, you’ll take two RMDs this year – one distribution for last year (the year you turned 70½), which must happen before April 1, and one distribution for 2014, which must happen before December 31.
You may be thinking, what’s the big deal if I don’t take a required distribution? Well, it’s 50% of what you should have distributed to yourself. Yes, that is a hefty penalty! What makes it worse is that you still have to pay income tax on the full amount, not just the amount that you’re left with after you’ve paid the penalty. The custodian of your retirement account should be able to help you calculate the required distribution amount.
If you are over the age of 70½ and forgot to take your RMD, you should take the required distribution as soon as possible and notify the IRS using Form 5329, along with an explanation about why you failed to take the RMD. The IRS may waive the penalty, but that’s not likely to happen if the IRS discovers the error before you do. So, do not delay!