The rules governing traditional IRAs require you to begin taking required minimum distributions (RMDs) when you reach age 70 ½. These distributions are based upon the IRS’ estimation of your life expectancy. IRA beneficiaries must also make RMDs, but the distributions follow complex rules.
Roth IRA owners don’t have to make RMDs, but their beneficiaries do. For RMDs, you’ll receive a Form 1099-R with a Distribution Code of 7 for normal distributions – there is no other IRA required minimum distribution tax form.
For IRA required minimum distribution tax reporting, include your RMD amount in your taxable ordinary income when you file your annual Form 1040 tax return. There is no special RMD tax form.
Understanding the Required Beginning Date
The required beginning date (RBD) for RMDs is April 1 in the year following the one in which you reach age 70 ½. You can take the first required beginning date in the year you reach age 70 ½ or in the required beginning date year, but will be penalized if you miss the required beginning date deadline. The penalty for failing to take an RMD is 50 percent of the amount you should have taken. After your first required beginning date, you must take subsequent RMDs by Dec. 31 each year, starting in the required beginning date year.
Figuring Your Required Minimum Distribution
As an IRA owner, you must recalculate your RMD each year. The calculation’s two inputs are:
- The IRA balance: You use the balance as of the close of business on Dec. 31 of the previous year. Ignore IRA contributions you make after Dece. 31 even if they apply retroactively to the previous tax year.
- Your distribution period: This is equal to the maximum number of years over which you can take IRA distributions.
Use the Uniform Lifetime Table in IRS Publication 590-B to find your distribution period if you are unmarried, or your spouse is less than 10 years younger than you, or your spouse isn’t the IRA’s sole beneficiary. You simply find the row for your age as of your birthday in the current year (i.e., the year of the RMD payment) and read off the distribution period. For example, suppose you turned 76 this year and the table’s distribution period is 22 years. (Note that the table changes every year). If your IRA balance was $66,000, then your RMD for this year is $66,000/22, or $3,000.
If your spouse is your sole beneficiary and more than 10 years younger than you, you use the Joint Life and Last Survivor Life Expectancy Table to find your distribution period. You do this by finding the intersecting row and column representing you and your spouse’s ages as of your birthdays in the year of the RMD payment.
You can withdraw more than the RMD in any year, but the excess doesn’t count when figuring the RMDs for subsequent years.
Distributions to a Deceased Owner
If you die before the required beginning date, then there is no RMD for the year. Subsequent distributions occur according to rules pertaining to IRA beneficiaries. If you die on or after the required beginning date, the RMD is required. When figuring the RMD for the deceased owner, the distribution period is looked up as if the owner had lived the entire year.
Distributions to Surviving Spouses
As a surviving spouse who is the sole beneficiary, you have options when inheriting an IRA:
- Take ownership: You can choose to make the IRA your own and take RMDs based upon your own age. If the owner died before the required beginning date, you don’t have to start taking RMDs until the year in which the owner would have reached age 70 ½. If you become the IRA owner during the year of your spouses’ death, you must take your spouse’s RMD distribution, if any, for that year. You can take ownership by designating yourself as the IRA owner or by rolling the inherited IRA into your own IRA (or qualified employer plan). If you roll over the inherited IRA, you can’t include any amount that is the deceased owner’s final RMD. If you do so, the IRS will impose a 6 percent penalty on excess contributions. As a spouse, you can roll over the IRA even if you aren’t the sole beneficiary.
- Accept as beneficiary: You can name yourself as an IRA beneficiary instead of taking ownership. By doing so, you must follow the RMD rules for other beneficiaries.
If the surviving spouse is the sole beneficiary, takes ownership and then dies in the current year, the RMD for the spouse’s heirs is based on the spouse’s life expectancy in the IRS Single Life Expectancy Table of Publication 590-B. If the spouse died in a previous year, the distribution period each year is determined by looking up the spouse’s life expectancy as of the spouse’s birthday in the year of the spouse’s death and then subtracting one for each following year.
Distributions to Other Beneficiaries
The rules for determining the distribution period for non-spouse beneficiaries (or spouses who choose to be treated as beneficiaries) begin with naming the designated beneficiary. This is important when there are multiple beneficiaries, because the designated beneficiary determines the distribution period for all beneficiaries. The designated beneficiary:
- Is named on Sept. 30 of the year following the IRA owner’s death.
- Must be a beneficiary as of the date of the owner’s death.
- Must continue to be a beneficiary as of the Sept. 30 milestone. However, any beneficiary who dies before the Sept. 30 deadline will continue to be treated as a beneficiary for the objective of defining the distribution period.
- Is the beneficiary with the shortest life expectancy as of the Sept. 30 milestone (unless the IRA has been divided into separate accounts for each beneficiary).
Separate Accounts for Beneficiaries
Normally, the distribution period for the designated beneficiary is based on all individuals who are beneficiaries. However, a single IRA can be split into separate accounts by some or all the beneficiaries. These separate accounts are combined when determining the distribution period, based upon the eligible beneficiary with the shortest life expectancy. That distribution period is determined by looking up the designated beneficiary’s life expectancy in the IRS Single Life Expectancy Table.
However, any beneficiary who establishes a separate account by the end of the year following the year of the owner’s death won’t be combined for RMD purposes. Special rules apply if any beneficiary is a trust rather than an individual. In that case, the entire contents of the IRA might have to be distributed by the end of the fifth year after the year in which the owner dies – the so-called 5-year rule.
Owner Predeceases Required Beginning Date
If the IRA owner died before the required beginning date, then the life expectancy of the designated beneficiary determines the distribution period for all beneficiaries. However, under certain circumstances, beneficiaries might be required to take a distribution of the entire account according to the 5-year rule. The rule applies if:
- The designated beneficiary elects to follow the 5-year rule, or
- One of the beneficiaries is a trust or other non-individual. However, if the trust is valid, irrevocable and explicitly names beneficiaries, then these beneficiaries are considered when selecting the designated beneficiary.
Owner Dies On/After Required Beginning Date
If the IRA owner dies on or after the required beginning date, then the distribution period for the designated beneficiary is found in the IRS Single Life Expectancy Table and is the longer of:
- The designated beneficiary’s life expectancy, and
- The owner’s life expectancy as of the owner’s birthday in the year of death, minus one for each subsequent year.
Qualified Charitable Distributions
A qualified charitable distribution is a nontaxable distribution made directly to a charity by your IRA trustee. You must be at least 70 ½ years of age when you make the qualified charitable distribution. You can apply any qualified charitable distributions to your RMD up to an annual maximum of $100,000. Qualified charitable distributions are not tax-deductible.
Items you will need
- IRS Form 1099-R from your IRA trustee
- You can calculate the tax on your required minimum distributions by working through the first page of IRS Form 1040 to find your adjusted gross income and looking up your tax rate by consulting the IRS Tax Rate Schedule.
- The IRS does not require minimum distributions from Roth IRA owners of any age.
- Online tax-filing programs screen-prompt you through the process of including your RMD in your income and calculating the tax owed. You can then e-file your return and pay the tax electronically, by paper check or by credit card, as long as the payment is received by the tax-filing deadline.