Tax Planning Before Turning 70: What You Should Know About RMDs

Trusts & Estate Planning
by Kira S. Masteller
818.907.3244

Tax payers aged 70 ½ or older this year must take a Required Minimum Distribution, or RMD, from their traditional IRAs (Individual Retirement Arrangements), SEP (Simplified Employee Pension) IRAs, SIMPLE (Savings Incentive Match PLan for Employees) IRAs, or retirement plan accounts. RMD reporting is required for inherited IRAs as well.
Those who do not take distributions in time may be subject to a 50 percent excise tax on excess IRA accumulations.

RMDs: The Devil in the Details

Keep in mind:

1. Defined Contribution Account owners may be able to wait until retirement to file a report.

2. Those who turned 70 ½ in 2015 must report a RMD before April 1, 2016 – unless they turned that age in the first half of the year. If that’s the case, the first RMD report must be made before December 31^st of this year.

3. First year reporters who wait to report in April will be required to report twice (which could raise tax obligations) because they are required to report an RMD again before December 31^st. This is why it’s important to begin tax planning for RMDs at age 69.

After the first year, IRA owners are required to report annually by year’s end.

4. Life expectancies of the taxpayer and the taxpayer’s spouse will play a factor. See the IRS’s resources for calculating RMDs for more information, but it essentially comes down to the taxpayer’s account balance the preceding year’s end, divided by an IRS life expectancy factor.

5. Taxpayers who have forgotten to take RMDs in the past should take all of them as soon as possible, because of the excise tax mentioned above.

Retirees and other tax payers who don’t need their RMDs might consider reinvesting those funds into a Roth IRA, which won’t require withdrawals until after the account owner passes, or a grandchild’s 529 college savings account. And there are other planning tools available to help reduce your taxable estate. Simply speak with your accountant or trusts & estates attorney for more information.

Kira S. Masteller is a Shareholder in our Trusts & Estate Planning Practice Group. She may be reached by email: kmasteller@lewitthackman.com or by phone: 818.907.3244.

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