By Beverly DeVeny, IRA Technical Expert
Follow Me on Twitter: @BevIRAEdSlott
Required minimum distributions (RMDs) start at age 70 ½ for all traditional IRA owners, including those who have SEP and SIMPLE IRAs set up through their employers - even if they are still working for those employers at the time.
In only the first year you are required to take distributions, you can defer the distribution until April 1 of the following year. This is your required beginning date (RBD).
If you die before your RBD, then there is no required distribution for your year of death - even if you already took part of the distribution before you die. Your spouse or other beneficiaries are not required to take any further funds out of the IRA to satisfy your distribution in the year of death. If the beneficiaries do not need the money, then let it stay in the IRA to continue growing and compounding tax deferred until they need to begin taking their own RMDs from the inherited account (12/31 of the following year).
But, if you die after the RBD and have not taken your entire RMD for the year, then your beneficiaries must take the balance of the RMD before the end of the year. The RMD for the year of death is calculated as you had lived for the entire year.
It is important that your beneficiaries know to take this distribution. The penalty for not taking a required distribution is 50%; that is not a typo; it is 50% of the amount not taken. But wait, there’s more! The amount of the missed distribution must be taken from the account and the beneficiary must pay income tax on that amount in addition to the penalty.