Don’t Forget Your 2013 Required Minimum Distribution

Doctor with senior patientEventually you’ll have to start withdrawing funds from your retirement plan(s) and paying tax on the withdrawals. If you don’t, you’ll pay a penalty equal to 50 percent of the amount you should have withdrawn.

These mandatory withdrawals generally start when you reach age 70½. Once that happens, you must withdraw the required amounts by the end of each year. Exception: when you initially reach age 70½, you’re given until April 1 of the following year to take your first distribution. Such postponement, however, will require you to take two distributions in that year.

(Note: If you’ve inherited an IRA from someone other than your spouse, you may have to start taking distributions before you reach age 70½.)

Plans subject to required minimum distributions (RMDs) include all types of qualified plans, such as non-Roth IRAs, 401(k)s, 403(b)s, SEPs, and SIMPLEs. RMD amounts change each year according to the amount remaining in each plan’s account, your projected life span, and, sometimes, the age of your spouse. Usually the entity holding your plan’s funds will notify you of the required amount each year, or you can look it up in the tables in IRS Publication 590.

For the year 2013 only, you may be able to avoid including your RMD in your reportable income by having the trustee of your IRA directly donate the distribution to a qualifying charity. If the donation is at least equal to your RMD, none of the RMD will be taxable. Although you can’t deduct the contribution, the distribution will be excluded from your income.

The donation option is limited to $100,000 and applies only to IRAs and not to 401(k)s, SEPs, or other retirement plans. Contributions must meet the usual requirements for charitable deductions. Since the applicable rules can be complicated, it’s best to get details if you want to pursue this approach.

For any assistance you need, give Cisco & Co a call at 419-629-3494.

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