Your Minimum Required Distribution is part of the deal people created with Uncle Sam ( the US Government) or what people would view as the IRS. The Minimum Required Distribution started in January of 2000. All too often we have clients who are turning 70 1/2 who don’t want nor need the income. People who have pensions are sometimes in that predicament.
What people forget is that is the deal they agreed to in exchange for taking pre-tax money and putting into investments to grow tax-deferred. They seem to have forgotten about the tax-deferred part.
When do they start
Your Required Minimum Distribution are to start in the year you, the owner, turns 70 1/2. The withdrawal is taken as late as April 1 of the following year. The challenge with postponing the distribution is that then you must take a second distribution that same year. The challenge we see is the tax implications of postponing the withdrawal.
When do they stop
They really never stop. There is however one way in which the distributions can drop out of the calculations. That is to put the money into an annuity and annuitize the contract. We typically don’t recommend this path. There might be situations where this makes sense, we simply have not seen one yet.
Penalties for missing a Minimum Required Distribution (MRD or RMD)
Penalties are due if you happen to miss taking an RMD. The penalties are steep! The IRS levies fine of 50% of what the RMD was for that year. Even if you have missed your Minimum Required Distributions for a while, you must file paperwork and take the back distributions.
How do you correct a missed RMD
We have the procedure for correcting such a situation. We have that laid out on our sister website missedrequiredminimumdistribution.com It has been possible to have the penalty waived. The government is putting checks in place to catch these missed minimum required distributions. Once these are fully functional it not likely people will be able to have the penalties waived. You may also wish to use our RMD calculator here
Who needs to be aware of these minimum required distributions
Every IRA, 401k, 457, 403(b) owner and the beneficiaries of these accounts. If the owner has missed these distributions, the beneficiaries must correct the problem. Therefore, don’t assume your family has this handled. We suggest working to understand what these are and how to approach your family to make sure they are being properly managed.