RMD Deadline And What To Do if You Miss It

When you turn 70 1/2 you have to start taking Required Minimum Distributions (RMDs). These are forced distributions from your retirement account that are intended to define the end of your retirement account by the I.R.C. The code uses this method because retirement accounts are not intended to be a wealth transfer tools. If you want to utilize these accounts as wealth transfer tools, you should explore the stretch IRA concept. These required distributions are due by December 31st of every year. They are calculated based on your age and the fair market value of your account.

The year you turn 70 1/2 is your first RMD year, which is considered your Required Beginning Date (RBD). In that first year only there is a small grace period for your first withdrawal. Instead of being due by December 31st, they are due by April 1st. April 1st is coming up fast! This extended deadline only applies to your RBD year, not the years following. Except for certain exceptions, that RBD year will be the year you turn 70 1/2.

If you need to take that first RMD this year from a retirement account like an IRA, make sure you have taken it. If you have not, you have until April 1st.

RMDs are often missed, so what how do you handle a missed RMD? The penalty for missing your distribution is very stiff. 50% of your under withdrawn amount is the cost. So if your RMD missed was $5,000 dollars, your penalty is $2,500.

The best thing you can do is to take the missed RMD immediately. You will then need fill out form 5329. Part 8 will calculate the penalty. This form can be sent to the IRS without your tax return. In the past the IRS has been forgiving of this penalty if you have acted to correct the mistake as soon as you are aware of the problem. This is not indicative of how the IRS will treat your case or any future cases. Some suggest that you send in the form 5329 with a letter of explanation, asking for the penalty to be abated. You could choose to not send the check in with the form and wait for the IRS to send you a letter back abating the penalty or requiring the tax be paid. Remember, this is just peer suggestion, don’t do this without talking to your tax professional. You may owe additional interested and penalties for sending in the check later if the IRS does not abate the penalty. You will have to weigh the cost / benefit of either outcome.