The first question someone might ask is, what is an RMD? An RMD is an annual distribution from an IRA (Individual Retirement Account) that is required by the IRS. Distributions begin in the year in which the person turns 70½ and is based on the person’s life expectancy. Some might ask why? In short, the funds have grown tax deferred, and the IRS wants to collect the taxes on the income.
The withdrawals that you make from your IRA are taxed as ordinary income, according to your income tax rate. The first withdrawal can be deferred until April 1st of the year following the year in which you turn 70 ½. If you do not take the RMD by the required date each year, then you could be subject to a 50% penalty on the RMD amount. Additionally, if you take more than your required distribution in any year, you do not receive credit when determining RMDs in future years.
What if you have inherited an IRA from someone else?
If you inherit an IRA from your spouse, it can simply be rolled (transferred) into an IRA in your name, and any RMDs are treated like a normal IRA with the age 70 ½ rule being applied. If it is inherited from anyone else, then the rules are more complicated. In general, Required Minimum Distributions are based on the surviving beneficiary’s life expectancy, and are calculated annually. All the distributions from an inherited IRA are taxable to the person who inherited it.
At B&C Financial, we help to coordinate all of our clients’ RMDs. We ensure that no one misses their deadline, and help them to figure out what method of withdrawal works best for them. Let us know how we can help you! For more information, call our office or submit your questions below.