RMDs for Retirement Accounts: What You Need to Know

12.16.16New Year’s Eve is the deadline for taking RMDs if you are older than 70 ½. Haven’t started yet? Get on this right away to get it done in time. Otherwise, be prepared to pay a penalty.

You still have a little time to beat the last minute rush on taking your Required Minimum Distributions (RMDs) from traditional IRAs and 401(k)s, according to Kiplinger’s “FAQs About Required Minimum Distributions for Retirement Accounts.” However, you had better hurry if you are older than 70 ½. You only have until December 31st and any delays could be expensive. Remember that you aren’t the only one making this transaction at this time of year, and you’re hardly alone in waiting until the last minute.

Here is some additional information to help you meet your deadline for IRA withdrawals and some special rules for 401(k)s.

Start now. You should start initiating the process as soon as possible to give plenty of time for the RMD to be made. Submit the request quickly because the call and request volume for financial service providers can get very high at the end of the year. In addition, if your transaction requires you to sell any holdings, it can take time and may be delayed with the markets closed during the holidays.

Charitable giving. If you want to give some of the RMD from your IRA to charity, there is good news. You are allowed to give up to $100,000 from an IRA to charity. You can make the transfer anytime during the year. This is called a qualified charitable distribution, and it must be completed by December 31 to qualify as your RMD.

Your first RMD. The date of your first RMD is based on when you turn 70½, not 70. If you turned 70 between January and June, you turn 70½ in 2016 and must take your first RMD from traditional IRAs this year (or you can wait until April 1, 2017 to take the first withdrawal, but you have to take the second withdrawal by December 31, 2017). Folks who turn 70 between July and December 2016, don’t hit 70½ until 2017. Therefore, they’ll need to take their first required withdrawal in 2017 … or they can wait until April 1, 2018 to take the first withdrawal), but have to take their second withdrawal by December 31, 2018.

Specific RMD rules for 401(k)s. Retirees must take RMDs from 401(k)s starting at age 70 ½, the same as for traditional IRAs. Are you still working? Then you can wait to take your RMD from your current employer’s 401(k) until after you have stopped working. The exception: if you own 5% or more of the company.

RMD rules can be a little confusing. If you have questions, ask your Houston estate planning attorney for guidance.

For additional information on estate and tax planning in Houston, please visit our website.

Reference: Kiplinger’s (November 23, 2016) “FAQs About Required Minimum Distributions for Retirement Accounts”

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