The Internal Revenue Service reminds retirees born before July 1, 1949, that they usually must take distributions from their retirement plans by Dec. 31.
The payments, called required minimum distributions (RMDs), are normally made by the end of the year. Those who turned 70½ in 2019 are allowed to wait until April 1, 2020, to take their first RMDs, according to an IRS news release.
The special April 1 deadline only applies to the RMD for the first year. For all subsequent years, the RMD must be made by Dec. 31. For example, a taxpayer who is 70½ in 2018 and receives the first RMD on April 1, 2019, must receive a second RMD by Dec. 31, 2019.
The required distribution rules apply to:
- Owners of traditional Individual Retirement Arrangements (IRAs)
- Owners of traditional Simplified Employee Pension (SEP) IRAs
- Owners of Savings Incentive Match Plans for Employees (SIMPLE) IRAs
- Participants in various workplace retirement plans, including 401(k), 403(b) and 457(b) plans
Roth IRAs don’t require distributions while the original owner is alive.
An IRA trustee, or plan administrator, must report the amount of the RMD to the IRA owner. Alternatively, an IRA trustee may offer to calculate the amount of the RMD for the owner, the release added.
An IRA owner, or trustee, must calculate the RMD separately for each IRA owned. However, they can choose to withdraw the total amount from one or more of the IRAs. In contrast, RMDs required from workplace retirement plans must be taken separately from each account.
The RMD is based on the taxpayer’s life expectancy and their account balance.
For most taxpayers, life expectancy used to calculate the RMD is based on Table III (Uniform Lifetime Table) in Publication 590-B, Distributions from Individual Retirement Arrangements (IRAs). For example, it shows that for a taxpayer who turned 72 in 2019, the required distribution is based on a life expectancy of 25.6 years. Table II applies to a taxpayer whose spouse is more than 10 years younger and is the taxpayer’s only beneficiary, the release added.
The trustee reports the year-end account value to the IRA owner on Form 5498, IRA Contribution Information (Info Copy Only), in Box 5.
Often, a trustee will use Form 5498, box 12b, to report the RMD to the recipient. In that case, a recipient can find their 2019 RMD on the 2018 Form 5498. The 2018 Form 5498 is normally issued to the owner during January 2019.
RMD rules are mandatory for all owners of traditional, SEP and SIMPLE IRAs and participants in workplace retirement plans. However, some people in workplace plans can wait longer to receive their RMDs. If their plan allows, current employees, can wait until April 1 of the year following retirement to start taking RMDs, regardless of their age. However, there may be tax consequences for doing so. See Tax on Excess Accumulations in Publication 575, Pension and Annuity Income.