Required Minimum Distributions – It’s Almost That Time Again

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As the leaves continue to turn and the holiday season approaches, tax time is probably the last thing most of us are thinking about right now. However, New Year’s Eve will be here before we know it. It may therefore benefit some self-directed investors to begin contemplating required minimum distributions (RMDs) among other tax-related matters. As written in the Internal Revenue Code, account holders who have made tax-deferred contributions to a Traditional IRA (or another such pre-tax plan) must begin repayment of those taxes once they reach a certain age. Accordingly, clients who meet the following criteria will be subject to RMDs:

  • SEP, SIMPLE, or Traditional IRA holders who are age 70 ½ or above have until December 31 to take their 2017 RMDs.
  • Non-spouse Inherited IRA account holders must take RMDs regardless of age, also before December 31.
  • Those who turn 70 ½ or inherit a non-spouse IRA in a particular year may defer their first RMDs until April 1, the following year. All subsequent RMDs will be due December 31 per usual.

To calculate your RMD, you’ll need your end-of-year balance from the previous year and a numerical factor that corresponds with your age (other factors may dictate the calculation as well). In their simplest forms, RMDs can be initiated by contacting our office to request the cash withdrawal of your required minimum. The distributed funds will be reported as income and indicated on Form 1099-R, which you will receive before the tax filing deadline. Here are some other considerations:

  • If you have multiple pre-tax accounts, each will bear a required minimum but you’re under no obligation to take separate distributions. For instance, if you owe $1,000 from each of your three Traditional IRAs, you may execute a single $3,000 distribution from any one of them.
  • You don’t have to fulfil an RMD all at once. You may collect small withdrawals over the course of the year and still avoid IRS penalties, provided the full required minimum is cumulatively distributed by the deadline.
  • In-Kind Distributions – In the absence of an available cash balance, you are not required to sell your holdings prior to distribution. Physical assets may be distributed without liquidation, at which point they would become your personal property. The fair market value of distributed in-kind assets will be recorded on the Form 1099-R for tax purposes.

At New Direction Trust Company, we take pride in the prompt and accurate completion of these transactions. We understand that RMDs may seem like a burden, but we’re happy to help with every step of the process. Please don’t hesitate to give us a call if you have any questions or would like to begin the RMD process sooner rather than later (highly recommended).

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