Required Minimum Distributions Flashcards
What is the date by which the first RMD must be received?
April 1 if the year after the year in which the account owner turns 70 1/2.
What is the rule governing the timing of the first RMD from employer plans?
The first RMD must be received by April 1 of the year after turning 70 1/2, or after they stop working, whichever is later.
Need to check rule that determines how many hours of work are necessary to qualify as “working”
T or F - IRA owners can always take out more than the RMD.
True
What is the penalty for drawing out less than the full amount of the RMD?
There is a excise tax equal to 50% of the amount that should have withdrawn. This in addition to federal + state income tax.
Can RMDs ever be rolled over?
No. They can never be rolled over, since the goal of RMDs is to force taxation of the money.
How does ineligibility for rollover impact income tax withholding for RMDs?
No withholding is required at the time the RMD is withdrawn (although it is available if desired), and the recipient pays tax at the time they file.
Can amounts taken in excess of an RMD be rolled over?
Yes. They can be rolled over within a 60 day window. In general, withholding is required on amounts in excess of RMDs (exceptions?)
What is the exception to the rule regarding extending the start of RMDs past age 70 1/2 for employer plan for those still working?
If the employee owns 5% or more if the company
What the date by which all subsequent RMDs must be withdrawn?
By 12/31
How does the impact of working past age 70 1/2 differ on RMDs from IRAs versus Employer Plans?
IRS code allows RMDs from employer plans to be delayed until April 1 of the year after the year the participant retires (However, individual employer plan rules may require RMDs at age 70 1/2 regardless of whether the participant is still working. Also, RMDs can’t be delayed past 70 1/2 for certain self employed persons)
RMDs from IRAs are unaffected and must begin by April 1 of the year after the year after they turn 70 1/2.
If more than the required RMD amount is withdrawn in one year, can the excess amount be credited against next years RMD?
No. Excess withdrawals one year cannot be credited against RMDs in future years. However, because there will be less in the IRA the following year, the RMD will be somewhat smaller.
What is the time limit for rolling over excess RMDs to avoid taxes?
60 days
What are the two most important ages for taking retirement plan distributions? What is the third most important age?
59 1/2 and 70 1/2
59 1/2 - Once you attain this age, you can take retirement plan contributions without penalty ( the IRS) hopes you will they can start taking embedded tax revenue). Another reason applicable to CEPA doctors - Inservice withdrawals for Roth conversions become possible.
70 1/2 - You must take RMDs from all IRAs, and from all employer plans (unless still employed and assuming you are not employed by a company in which you own more 10% of the stock).
55 - If you are at least 55, and separated from service, you can take distributions from a qualified plan (but not an IRA) without paying the 10% early withdrawal penalty. Note - This rule doesn’t apply very often)
With regard to RMD planning, what is the significance of being born in the first half of the year (1/1 through 6/30)?
You will turn 70 1/2 in the second half the year and will be subject to first RMD on 12/31 of the year you turn 70 1/2. For instance, if you are born on February 5, 1943, then you would 70 1/2 on August 5, 2013 and be forced to take your first RMD no later than April 1, 2014. However, if you born after June 30th 1943, then you not turn 70 1/2 until 2014, and could delay the first RMD until April 1, 2015.
Case: A client turns 70 1/2 in August 5 of 2013. How you calculate their first and second RMD?
The first RMD would be based on their account balance as of 12/31/12, with a divisor selected based on their age on 12/31/13 (age 70). This RMD could be taken as late as 4/1/14.
The second RMD would be calculated based on their account balance as of 12/31/13 using a divisor calculated on their age as of 12/31/14 (age 71). The second RMD would have to be taken by 12/31/14.
