Mandatory Notification of RMDs for 2014

Friday, January 31, 2014

By Beverly DeVeny, IRA Technical Expert

Follow Me on Twitter: @BevIRAEdSlott

If you are an IRA owner who will be age 70 ½ or older this year, you should have received a notice from your IRA custodian telling you that you have a required minimum distribution (RMD) this year. They will also notify IRS on Form 5498 that you have an RMD. The letter to you should also tell you how much your RMD is for the year or offer to do the calculation for you. While you can generally rely on the calculation done by your IRA custodian, here are our 5 easy steps to be sure their calculation is correct. (You can receive 5 easy steps to many tax and retirement planning issues with our 5 Easy Steps White Papers.)

1. Determine the distribution year
For most distributions, that will be the current year.

2. Find the IRA balance
You will use the prior year-end account balance unless you have an outstanding rollover (rollover deposit in transit at year end) or Roth recharacterization as of that date.

3. Look up the life expectancy factor
Most IRA account owners will use the Uniform Lifetime Table. There is an exception for account owners whose spouses are more than 10 years younger and are the sole beneficiary of the account for the entire year. These individuals will use the Joint Life Expectancy Table. Most IRA custodians will NOT do this for you automatically.

4. Divide the account balance by the life expectancy factor
This is the math part, but you don’t have to be a genius to come up with the right number!

5. Take the RMD
This is really important. If you do not take the full RMD, the penalty is 50% (that is not a typo – it is 50%) of the amount not taken.

The RMD calculations for beneficiaries are a little different. For more information on the RMD calculations and to find those life expectancy tables mentioned here, check out IRS Publication 590, Individual Retirement Arrangements (IRAs). You can find it on the IRS website, www.irs.gov. On the left hand side of the screen, click on Forms and Publications.

If you have any sort of complication in your RMD calculation, such as a missed RMD, a death, an account split in a divorce, or any of the myriad of other situations you folks can come up with, you should consult with a competent IRA advisor. You can find a list of Ed Slott-trained advisors on our website, www.irahelp.com.

 

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