Are you Required to Take a Distribution?

By Elsie Dudukovich1 Comments
Aside from the different tax environments, whether or not you need to take an RMD is one of the fundamental differences between a Traditional and Roth IRA. Unlike a Roth IRA, SEP, SIMPLE, and Traditional IRAs all require the account owners to start taking distributions from the account when they reach age 70 ½ and continue taking these annual distributions for as long as you hold the account.
Remember you have to take your RMD by the end of the year, but you do not need to wait until the end of the year to do so.  The amount is based on your account value for the preceding year. This gives you the opportunity to request the distribution earlier in the year and have the peace of mind knowing this requirement is complete.

What could happen if you don’t take your RMD?
If you neglect to take your RMD or didn’t take the full amount by the deadline, the amount not taken is taxed at 50 percent.  This would be reported on IRS Form 5329 and IRS Form 1040.  You can find detailed instructions on the IRS website on how to figure out the excise tax you owe, but we suggest you seek guidance from a qualified tax professional because you want to make sure you take the correct amount and that you are using the correct Form 1040. 

Paying the excise tax is the first step in correcting a mistake with your RMD.  After pay the penalty amount, be sure you withdraw the full RMD amount you failed to take, as the excise tax is separate from the RMD balance from prior years.  Make sure you fulfill your RMD obligation by December 31 for the current year as well!

It is possible to request a waiver from the IRS for excise tax by providing a letter of explanation as to why you missed the RMD deadline.  This letter is included with your tax return (Form 1040) and your Form 5329.  Again, we encourage anyone in this situation to seek guidance from a tax professional, as the IRS can reject your request for the waiver.

RMD Resources
When it comes to calculating the amount of your RMD, your IRA custodian may send a letter each year with the RMD amount based on the value of your Traditional IRA with that custodian. 
  • If you prefer to calculate the amount yourself, the IRS provides worksheets and tables.
  • If you have more than one Traditional IRA with one or more custodians, you should consult with a tax advisor on the best way to take your distributions.