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If you have a retirement account, whether it's a traditional, SEP, or Roth IRA, or a 401(K), your account will become subject to mandatory withdrawls known as required minimum distributions (RMDs). These RMDs are considered taxable income and thus, can affect your tax return. To help you understand this, our CPAs are breaking down how to take your RMDs so they can be included in your tax preparation.
When Required Minimum Distributions Start for IRAs
According to current IRS guidelines, if you have an IRA plan, your RMD is supposed to be scheduled within six months following your 70th birthday. However, the first withdrawal may be deferred until April 1 of the following calendar year. The second withdrawal must be made on or before December 31 of the year following the date six months past your 70th birthday (basically, 18 months after your 70th birthday), and RMDs must continue to be made on or before December 31 in each succeeding year thereafter.
Mandatory Withdraws for 401(K)s and 403(B)s
The RMD start date for 401(k), 403(b), and other specified profit-sharing plans is typically April 1st of the calendar year after the plan owner turns 70 ½ or after the plan owner retires—whichever date is later.
Precise withdrawal amounts are dependent on two variables and will therefore change from year to year. The first variable is the retirement account's year-end value, and the second is a distribution period predetermined by the IRS. Worksheets are available from the IRS to facilitate RMD calculation for any given calendar year.
Failure to withdraw the full amount of the RMD prior to its applicable deadline will result in a 50% tax penalty on the amount of the shortfall, so staying on top of the situation is certainly in your best interest.
Schedule a Consultation with an Accountant Today
Since required minimum distributions may have far-reaching implications in terms of both income tax planning and estate planning, we recommend that you consult with one of our accounting professionals to discuss the specifics of your retirement accounts and financial circumstances. Reach out to our CPAs in Raleigh today to set up a consultation by calling us at 919-420-0092 or fill out our contact form.
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