Welcome to The Slott Report - IRA and Retirement Planning Information
When Is Your IRA Distribution Taxable?
It is year-end. Retirement account owners and beneficiaries are grappling with required distributions for 2013 and, in some cases, with missed distributions from prior years. When there is a missed distribution, we constantly get the question, “Do I have to do an amended tax return?” The answer is, “No.”
Distributions from retirement accounts are taxable to the recipient in the year in which the funds come out of the account. Here are some examples:
- If you missed a distribution in 2012 and took it in 2013, then it is included in your 2013 income.
- If you missed distributions for 2010, 2011, and 2012 and took them all in 2013, they are all included in your 2013 income.
- If the distribution is made by the account on December 31, 2012 and you received it on January 3, 2013, it is included in your 2012 income.
- If you miss the deadline for taking your 2013 required distribution and do not take it until January 2014, it will be included in your 2014 income.
If an account owner with a required minimum distribution died in 2013 before taking all of his or her distribution, any remaining unpaid distribution must be paid to the beneficiary of the account using the beneficiary’s Social Security number.
When a required distribution is missed, there is a penalty of 50% of the amount not taken. This is reported on IRS Form 5329, which can be filed as a stand-alone tax return. IRS can waive the penalty for good cause. The form can be found on the IRS website, www.irs.gov. Click on the Forms and Publications button.
-By Beverly DeVeny and Jared Trexler