Year-End RMD Reminders

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

Time is running out to take required minimum distributions (RMDs) due for this year. Many companies have cut-off dates for distributions, so if you have not yet taken your RMD you need to act now. The penalty for not taking a distribution is 50% of the amount not taken. It must be reported on Form 5329 and if it is not reported, the statute of limitations does not start to run.

Following are answers to questions that come up frequently at this time of year.

1. If you are more than a 5% owner of a company you must take an RMD from the employer plan even though you are still working and contributing to the plan.

2. If you participate in a SEP or SIMPLE IRA and are over age 70 ½, you must take an RMD even though you continue to contribute to the plan.

3. Non-spouse beneficiaries of Roth IRAs have required distributions beginning in the year after the account owner’s death.

4. If an account owner in payout status died this year (died after the April 1 required beginning date), the year of death RMD must be taken by the beneficiary of the account. It is calculated as if the account owner lived for the entire year. It is not payable to the decedent or to the estate.

5. You can aggregate IRAs (including SEPs and SIMPLEs) you own and you can aggregate IRAs inherited from the same person but not IRAs owned and inherited. The same is true for 403(b) accounts. You can never aggregate different types of accounts or any employer plans.

6. You cannot make a contribution to an IRA for someone who died this year. The reasoning is that if a person is deceased, they do not need a retirement plan. You really can’t argue with that.