Who Has an RMD for This Year?

Friday, September 18, 2015

By Beverly DeVeny, IRA Technical Expert
Follow Me on Twitter: @BevIRAEdSlott

The year-end required minimum distribution (RMD) questions are starting to come in.  This one came in from an advisor. Melissa and her spouse Gary both turned age 70 this year. Melissa’s birthday is in May and Gary’s is in September. Who has an RMD for this year?

If you said both of them, you would be half right. Individuals do not have an RMD until the year they turn age 70 ½. Not 70. Don’t ask me why it has to be so complicated, ask Congress. They write the laws.

Melissa has an RMD this year. She turned 70 in May so she will be 70 ½ in November. Gary turned 70 in September, so he will not be 70 ½ until March of next year. Thus, Gary does not have an RMD until next year.

If this isn’t complicated enough, for the first year’s RMD only, Melissa and Gary can defer their first payment until April 1 of the following year. Not March 31, which would be the end of the first quarter, not April 15, which is when income tax returns are due, but April 1. 

However, that is not as great a deal as it may seem. They would be putting off the first RMD to the second year in which they have to take another RMD. So, they would also have to take the second RMD by the end of that year. They would be doubling up on their retirement income for the year. This could have a serious impact on the amount of income taxes due for the year.

If you have any questions on your RMDs (and here is a list of 10 things you should know), especially your first-year RMD, you should contact an advisor with knowledge of the RMD rules and calculations. A missed RMD comes with a penalty of 50% of the amount not taken. That’s right 50%. I guess Congress wants to be very sure that you take your RMDs. But, IRS can waive this penalty for good cause.

The penalty is reported on IRS Form 5329, which you file with your tax return. It can also be filed as a stand-alone return. If you do not file this form to report the penalty, the statute of limitations does not start to run and IRS can come back at any time to assess the penalty and interest as well as other penalties, such as the failure to file penalty.

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