-Published: Tuesday, December 17, 2019-
Dec. 31 deadline for most retirees to take required minimum distributions
By the A.M. Costa Rica wire services
The Internal Revenue Service, known as IRS, is reminding retirees born before July 1, 1949, that they usually must take distributions from their retirement plans by Dec. 31 each year.
According to the IRS, the payments, called required minimum distributions, are normally made by the end of the year. Those who turned 70½ in 2019 are allowed to wait until April 1 to take their first distribution. The special April 1 deadline only applies to the first year.
For all subsequent years, the distribution must be made by Dec. 31.
An example provided by IRS, is when a taxpayer who is 70½ in 2018 and received the first distribution last April 1 must receive a second one by Dec. 31.
The required distribution rules apply to:
- Owners of traditional individual retirement arrangements, know as IRAs.
- Owners of traditional simplified employee pension, know as SEP-IRAs
- Owners of savings incentive match plans for employees, known as SIMPLE- IRAs
- Participants in various workplace retirement plans.
According to the IRS, Roth IRAs don't require distributions while the original owner is alive.
An IRA trustee, or plan administrator, must report the amount of the distribution to the IRA owner. Alternatively, an IRA trustee may offer to calculate the amount of the distribution for the owner.
An IRA owner, or trustee, must calculate the distribution separately for each IRA owned. However, they can choose to withdraw the total amount from one or more of the IRAs.
In contrast, distributions required from workplace retirement plans must be taken separately from each account, the IRS said.
The distribution is based on the taxpayer's life expectancy and their account balance, said the IRS. The distributions become subject to normal taxation in the year received.
For most taxpayers, life expectancy used to calculate the distribution is based on a statistical table.
IRS provides the example, when it shows that for a taxpayer who turned 72 in 2019, the required distribution is based on a life expectancy of 25.6 years. The table applies to a taxpayer whose spouse is more than 10 years younger and is the taxpayer's only beneficiary.
Individuals can use online worksheets on posted on IRS.gov site to figure the distribution
According to the IRS, the distribution 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 distributions. 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 to doing so.
More information on distributions can be also reached on IRS.gov. site.
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