The Internal Revenue Service today reminded taxpayers born
before July 1, 1944, that they generally must receive payments from their
individual retirement arrangements (IRAs) and workplace retirement plans by
Dec. 31. Known as required minimum distributions (RMDs), these payments
normally must be made by the end of 2014. But a special rule allows first-year
recipients of these payments, those who reached age 70½ during 2014, to wait
until as late as April 1, 2015 to receive their first RMDs. This means that
those born after June 30, 1943 and before July 1, 1944 are eligible for this
special rule. Though payments made to these taxpayers in early 2015 can be
counted toward their 2014 RMD, they are still taxable in 2015.
The required distribution rules apply to owners of
traditional IRAs but not Roth IRAs while the original owner is alive. They also
apply to participants in various workplace retirement plans, including 401(k),
403(b) and 457(b) plans.
An IRA trustee must either report the amount of the RMD to
the IRA owner or offer to calculate it for the owner. Often, the trustee shows
the RMD amount on Form 5498 in Box 12b. For a 2014 RMD, this amount was on the
2013 Form 5498 normally issued to the owner during January 2014.
The special April 1 deadline only applies to the RMD for the
first year. For all subsequent years, the RMD must be made by Dec. 31. So, for
example, a taxpayer who turned 70½ in 2013 (born after June 30, 1942 and before
July 1, 1943) and received the first required payment on April 1, 2014 must
still receive the second RMD by Dec. 31, 2014.
The RMD for 2014 is based on the taxpayer’s life expectancy
on Dec. 31, 2014, and their account balance on Dec. 31, 2013. The trustee
reports the year-end account value to the IRA owner on Form 5498 in Box 5. Use
the online worksheets on IRS.gov or find worksheets and life expectancy tables
to make this computation in the Appendices to Publication 590.
For most taxpayers, the RMD is based on Table III (Uniform
Lifetime) in the IRS publication on IRAs. So for a taxpayer who turned 72 in
2014, the required distribution would be based on a life expectancy of 25.6
years. A separate table, Table II, applies to a taxpayer whose spouse is more
than 10 years younger and is the taxpayer’s only beneficiary.
Though the RMD rules are mandatory for all owners of
traditional IRAs and participants in workplace retirement plans, some people in
workplace plans can wait longer to receive their RMDs. Usually, employees who
are still working can, if their plan allows, wait until April 1 of the year
after they retire to start receiving these distributions. See Tax on Excess
Accumulations in Publication 575. Employees of public schools and certain
tax-exempt organizations with 403(b) plan accruals before 1987 should check
with their employer, plan administrator or provider to see how to treat these
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