Required Minimum Distributions (RMD)
Several months ago in Money IQ, the focus was on retirement savings, specifically what IRA Savings Plan was best suited for you in reducing your tax bill.
Retirement and Required Minimum Distribution (RMD): The IRS mandates that an individual is subject to a Required Minimum Distribution from Traditional IRA Savings Plans or other retirement plan savings (Roth IRAs excluded) once one attains age 70 and ½.
Definition: RMD is the minimum amount an IRA owner must withdraw from their retirement account each year to avoid a substantial excise tax of 50%.
Calculation: The Fair Market Value (previous year account balance as of December 31) divided by the IRA owner’s Life Expectancy Factor equals the minimum amount that must be withdrawn.
Life Expectancy Factor: There a two applicable tables used in determining your life expectancy factor.
- ‘Uniform Lifetime Table’ is applicable if the IRA Owner’s sole beneficiary is 10 years or less in age than the IRA Owner.
- ‘Joint Life and Last Survivor Expectancy Table’ is applicable if the spouse is 10 years or younger in age than the IRA Owner.
Beginning Date and Subsequent Withdrawal Dates: The required beginning date for RMDs is April 1st of the calendar year following the year in which the IRA owner has attained age 70 and ½. Each subsequent year’s distribution must be withdrawn by December 31st. Remember the RMD amount is taxable in the calendar year it is distributed
Consequences for failing to make a Required Minimum Distribution: Can be an excise tax of 50 percent of the amount that was not distributed as required.
Taxation: the RMD amount is taxable to you for the calendar year it was received. See Form 5329 instructions for additional information on the tax consequence of your RMD.
An exception for 2013: Did you know that your Required Minimum Distribution (RMD) can be made as a Qualified Charitable Distribution (QCD) to a qualified charity of choice and you as the IRA Owner can exclude it from your gross income for the tax year of 2013? The American Taxpayer Relief Act of 2012 has extended (QCD) provisions for the tax year 2012 and 2013. Most of you missed the deadline of Feb. 1, 2013 to have made a donation of your RMD to charity for the tax year of 2012 but you have until Dec. 31, 2013 for the tax year of 2013.
Qualified Charitable Distributions (QCD) that an IRA Owner subject to an RMD can exclude from gross income for 2013 cannot exceed $100,000. Also, the amount of a QCD excluded from your gross income is not taken into account in determining any deductions for charitable contributions. (See http:// www.irs.gov/retirement-plans/charitable-donations )
Guidance: since none of us are tax experts, please consult with your Tax Advisor or visit the IRS website for additional information regarding Required Minimum Distributions.
Editor’s note: Tammy M. Thorn is the Vice President in LANB’s Lobby Services Group – Los Alamos. She has been with LANB for 34 years.
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