7 Things To Know About 2018 Required Minimum Distributions

From Forbes.com

By Matt Carey

(1) Almost Every Retirement Account Is Subject To Required Minimum Distributions (RMDs)

RMDs apply to 401(k)s, 403(b)s, Profit Sharing plans, Money Purchase Pensions, IRAs, SIMPLE IRAs, and SEP IRAs, among others. Inherited IRAs are subject to RMDs, but are based on the life expectancy of the original owner, not the beneficiary. Roth IRAs do not require withdrawals during the life of the owner. Read more from the IRS here.

(2) Withdrawals To Meet RMD Requirements Are Taxable

Withdrawals, since not previously taxed, will be included in your taxable ordinary income. RMDs are the minimum that you must withdraw each year — you can always withdraw more, but withdrawing more than the maximum does not allow you to carry over the difference and lowering your RMD in future years. Read more from Vanguard here.

(3) Failure To Comply With RMD Rules Can Carry A Stiff Penalty

There is a 50% penalty on the amount you were supposed to withdraw and did not. The RMD is based on the total balance of all your IRAs as of December 31 of the previous year. If you fail to take it by December 31 of the current year (with some exception for your first RMD), you will need to take the RMD late, submit Form 5329 available here and ask the IRS for leniency in imposing the penalty. Read more from a post by Rodgers Associates here.

(4) You Can Defer Up To 25% of Your RMDs to Age 85 With A Qualified Longevity Annuity Contract

Since 2014, it’s been possible to defer a portion (the lesser of 25% or $130,000) of your RMDs by purchasing a specific kind of annuity called a Qualified Longevity Annuity Contract, which allows you to defer income until as late as age 85. You can read more from Blueprint Income here.

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