While many individuals may not think twice about taking a required minimum distribution (RMD) or more from their retirement accounts each year, they might take it more seriously if they know the IRS can assess a 50% penalty for failing to take a RMD. If you or one of your family members turn 70 ½ during 2018, it is important to contact the financial advisor that oversees the retirement account to get the process started. The IRS allows the account holder until April 1st in the year after a taxpayer turns 70 ½ to take the first distribution. For example, if the account holder turns 70 on July 1st, 2018, they would not be required to take a RMD until April 1st of 2020 because the account holder will not turn 70 ½ until January 1st of 2019. In years following the first distribution, it is important to note that the distributions will be due by December 31st of the filing year.
A lack of understanding of what amount the RMD is per year leads some taxpayers to feel apprehensive about their retirement planning. To calculate what your RMD should be, simply take the balance of your IRA at December 31st of the year prior to your distribution and divide it by the distribution period listed in the uniform lifetime table listed below. For instance, if the account holder turns 71 during 2018 and the value of the IRA was 100,000 at 12/31/17, then the formula would be as follows:
$100,000 / 26.5 = $3,773.58
IRS Uniform Lifetime Table*
If you happen to find yourself in the crosshairs of the IRS for failing to take your RMD, there is good news. The IRS generally will excuse the penalty if failure to take the RMD is due to reasonable error and action was taken to correct the mistake. If you have questions about your RMD, let HORNE help.