Although the thought of Christmas coming isn’t overly jubilant to those hanging onto the waning days down to the Cape or Maine, it may be prudent to start putting some plans in place to prepare for year-end distribution requirements out of your IRA. To recap,if you are turning 70-1/2 this year, a calculation is requited to see how much is needed to be distributed to you from your traditional IRA. These calculations are based on IRS life-expectancy tables. If you turn 70-1/2 in 2014, however, your first RMD would be due by April 1, 2015. Your second RMD would be due by December 31, 2015. Taking two distributions in one year will increase your taxable income, and could boost you into the next tax bracket. Consult your tax advisor as to the risk of this happening. Remember, ROTH IRA’s do not have RMD requirements. The government does this because they want their cut of the taxes that are due with distributions from traditional IRA’s. Your RMD is based on the cumulative value of your cumulative IRA value.
A non-spouse beneficiary that inherits an IRA must begin taking RMD’s from an inherited IRA by Dec. 31 of the year after the deceased prior owner died. If you are a non-spouse beneficiary who chooses to withdraw the entire balance within five years, there is an exception to this RMD rule. If the new owner is a spouse, they can do a rollover of the inherited IRA to his or her own IRA. They can then wait until they turn 70-1/2 to take RMD’s. In the case of a 401(k), the surviving spousal beneficiary must start RMD’s by whichever is later: the year the deceased worker would have reached 70-1/2, the year following his/her death, or the fifth year following his/her death. Also, if the worker had already begun taking RMD’s, a spousal beneficiary must take distributions based on his or her own age, starting Dec. 31 or the year after the worker died.
All this talk about 12/31/14 makes me want to hang onto the late summer days of the year. However, the more you plan regarding IRA’s, the more time you will have to think of an actually unique Christmas gift for your loved ones. Happy Fall!