IRA Required Minimum Contributions

March 21, 2014

If you or someone you know turned age 70 ½ (yes, 70 plus six months) during 2013, then April 1, 2014 could be an important date. This is the date you must begin taking required minimum distributions (RMD) from your traditional IRAs. And if you retired from a company, you also need to begin making withdrawals from that retirement plan as well. If you don’t take these minimum distributions when required, you could get hit with a 50% penalty tax.

If you’re not yet 70 ½, but will reach that age in 2014, you actually have until April 1, 2015 to take your first year’s distribution. However, if you wait until 2015 to take this distribution, you may wind up loading too much income into 2015. That’s because you’ll also have to take your second year’s annual minimum distribution in 2015, since the extended deadline until April 1 is available only in the first distribution year. Doubling up on your income in a single year could have negative tax consequences overall. For example, you may be moved into a higher tax bracket in 2015. Additionally, you may be hit with tax on social security benefits in 2015, not to mention larger cutbacks on available deductions (such as for medical expenses).

The decision whether or not to accelerate minimum distribution payouts is not an easy one, and is not necessarily the best choice. Please contact JPS to discuss your specific situation and consider the various tax implications.