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Required Retirement Plan Distributions

The Internal Revenue Service today reminded taxpayers born before July 1, 1945, that they generally must receive payments from their individual retirement arrangements (IRAs) and workplace retirement plans by December 31.

Known as required minimum distributions (RMDs), these payments normally must be made by the end of 2015. But a special rule allows first-year recipients of these payments, those who reached age 70 1/2 during 2015, to wait until as last as April 1, 2016 to receive their first RMDs. This means that those born after June 30, 1944 and before July 1, 1945 are eligible for this special rule. Though payments made to these taxpayers in early 2016 can be counted toward their 2015 RMS, they are still taxable in 2016.

The required distribution rules apply to owners of traditional, Simplified Employee Pension (SEP) and Savings Incentive Match Plans for Employees (SIMPLE) 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 RMS amount on Form 5498 in Box 12b. For a 2015 RMD, this amount is on the 2014 Form 5498 normally issued to the owner during 2015.

The special April 1 deadline only applies to the RMD for the first year. For all subsequent years, the RMD must be made by December 31. So, for example, a taxpayer who turned 70 1/2 in 2014 (born after June 30, 1943 and before July 1, 1944) and received the first RMD (for 2014) on April 1, 2015 must still receive a second RMD (for 2015) by December 31, 2015.

The RMD for 2015 is based on the taxpayer’s life expectancy on December 31, 2015, and their account balance on December 31, 2014.

For most taxpayers, the RMD is based on the Uniform Lifetime Table published by the IRS. So for a taxpayer who turned 72 in 2015, the required distribution would be based on a life expectancy of 25.6 years. A separate table 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, SEP and SIMPLE IRAs and participants in workplace retirement plans, some people in the 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.

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 accruals.

For more information about RMDs, contact our office at (800) 416-3820 or (775) 884-6188. We have Enrolled Agents ready to assist you.