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Required Minimum Distributions Rules For IRA Holders Who Turn Age 70 1/2 This Year

Video Highlights:

[0:07]  A required minimum distribution on traditional IRA must be taken care of before the end of the year!

[0:30]  When do you have to start taking an RMD?

[0:55]  If you turned 70 prior to July 1st of this year, you may wait until April 1st, but you must take a second RMD prior to the end of next year!

[1:31]  What if you have multiple IRA accounts?

[2:06]  Remember that your custodians cannot help you calculate your RMD amount.

[2:43]  Your first step is to aggregate the value of your IRAs to find out how much you need.

[3:02]  This is the one thing you need if you invest in illiquid assets!

[3:29]  Can you use a piece of your real estate investment for your RMD?

[4:12]  When must the required minimum distributions be made?

[4:32]  Make sure your RMD is a taxable event for 2014 by getting it before close of business on December 31st! [0:10]  How do you open an IRA account?  There are 5 types of self directed IRA services.

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The IRS requires you start receiving RMDs at the age of 70 1/2 according to the life expectancy table. A RMD, or Required Minimum Distribution, is a required minimum amount of money that has to be distributed from your traditional IRA once you’ve hit the age of 70 1/2 or if you have turned 70 before July 1st.

As you probably know if you have a Traditional IRA, then you must begin taking mandatory distributions from the account once you turn age 70 ½. However, there are a few nuances that you should be aware of as you proceed through the RMD process. For example, RMDs don’t just pertain to Traditional IRA accounts, but also they extend to SEPs, SIMPLE IRAs and 401(k) participants.

Hopefully, the information provided below will enhance your awareness to some of these issues and help you raise questions, if you have not already, with your financial adviser or tax professional. Again, this information should never be substituted for personalized legal, tax or financial advice.

Note for First Timers: In the year you turn 70 ½, you will have until April 1st of the following year to take your first RMD. Again, that date is April 1, NOT to be confused with April 15, which is the tax return deadline!

Also, the April 1st grace period does NOT APPLY to anyone having attained age 70½ two years ago. If you turned 70 1/2 in 2012 or earlier, then this grace period no longer applies to you.

Furthermore, if you took your 2013 RMD in 2014, by April 1, you also need to take another RMD for 2014, IN 2014, by December 31. This will result in you having two taxable distributions in 2014, one for 2013 distribution and one for 2014, so hopefully you and your tax professional have properly planned for this or you may be surprised and face a double jeopardy tax situation.

As a refresher, keep the following things to keep in mind:

–             Roth IRAs are not subject to RMDs. Only traditional IRAs have RMDs.

–             If you turned 70 in 2014 before July 1st, then you you have until April 1st to take your first RMD. But remember, you will have to take another RMD for the following before December 31st.

–             Note for 401k RMDs: For 401ks, most RMDs are required to start for the year the individual attains age 70½; however, some 401(k) Plan Participants have a later date to start their RMDs depending on the 401(k) provisions for non-owner employees, so be sure to check with your plan administrator.

Are You Turning Age 70 1/2 this year? Begin With The End In Mind Otherwise You Will Be I.R.S.orry

 If you attained the age of 70 1/2 last year, then the RMD was required by April 1 this year.  Consequently, if you have still not taken the RMD for last year, AND you attained age 70½  last year, then you are past the deadline. Our advice if you find yourself in this situation, then you need to immediately get with your tax professional to find out what your options are and the tax consequences may be as a result of missing the deadline.

The Best Surprise Is No Surprise, So Plan NOW!

 If you are turning age 70 1/2 this year, then you need to start thinking and planning now about withdrawing your first Required Minimum Distribution. As previously stated, your first RMD must be taken by April 1st in the year after you turn 70 1/2. Again, this rule only applies to 1st time recipients of a Required Minimum Distribution. For example, if you turn 70 1/2 in 2014, then you have until April 1st, 2015 to take your first RMD. Each year thereafter, you must take your RMD by December 31st of that calendar year without exception.

Tips On How To Calculate RMDs

 The properly calculated distribution amount is based on your age and the Fair Market Value (FMV) of your ALL your assets inside ALL of your retirement account(s). The RMD is calculated by taking the aggregated FMV of ALL your IRA type accounts (this ALSO includes IRAs held with custodians other than Sunwest Trust), as of December 31st of the previous year.

This also applies to all Traditional, SEP and SIMPLE IRAs; regardless of what and where they are invested. Once you have determined the value of your account, to determine your RMD you will divide the total value of your IRAs by the number provided in the Life Expectancy Table. This calculation will give you your RMD for that year. If you need help with this, then give us a call and we can help you figure it out. We have also provided a video with answers to frequently asked questions. The RMD is based on the Fair Market Value (FMV) of the IRA.

Again, regardless of the investment. Whether the IRA is invested in Cash/Savings, Stocks, Bonds, Mutual Funds, Real Estate, Precious Metals or LLCs, the IRA rules are the same. Of course, if the IRA is short of cash, it can be a problem. But it does NOT change the guidelines. An RMD must be correctly calculated and distributed starting for the year the individual attains age 70½. If that means tangible assets must be liquidated from the IRA, then that is what is required; more on how to handle that below.

Tips on How To Take Required Minimum Distributions From Multiple IRA Accounts

It’s important to remember that RMDs from multiple IRAs can be taken from each IRA or they can be aggregated and taken from any one or multiple IRAs. RMDs are not required to be taken from each IRA. So the RMD from your self-directed IRA with little or no cash balance can be taken from another of your IRAs that has a sufficient cash balance. If you are taking an RMD from a different IRA, then it is recommended that you inform each IRA Custodian/Trustee as to where RMD will be taken.

One question asked frequently is, “What do I do if I have more than one traditional IRA account, can I take all of the RMD from just one IRA account?” The answer to this question is, yes. For example, let’s say you have an IRA at a brokerage house and you also have an IRA with a self directed custodian. In this case, what you could do is aggregate the total of both accounts and apply that asset total to the life expectancy table talked about in one of our previous articles.

If you need help with calculating your RMD, then simply call our office or speak to your financial planner about your specific RMD. Given the totals in the life expectancy table, you will be receiving an RMD amount for that year. If you fail to calculate this accurately, then you could face a penalty of up to 50% penalty on the cash amount that you failed to withdraw. Once you have your RMD amount properly calculated, you could start your required distributions.

For many clients who hold non-traditional assets in their self directed IRA, like real estate property, ownership in a private company, or a loan, it might be easier to liquidate their stocks, bonds, or mutual funds first and thus take the whole RMD this way. The RMD does not apply to each account individually; however, it’s an aggregate RMD based on the sum total of all the assets in your IRA accounts. If you decide to take a RMD from your self directed account, then you will have to liquidate or sell off part of a tangible asset. This is not impossible, but if you are not prepared it can be little more challenging, especially if you are working against a looming deadline.

It is a good practice to keep the RMD in mind if you are nearing the age of 70 and are looking to invest in illiquid assets. Since the RMD is required, that money needs to be taken out of the account regardless of how it’s processed. So if you are getting close to the age of 70 and don’t have another account to take RMDs from, it would be wise to avoid from illiquid assets, like real estate.

Of course, there are other options when it comes to taking RMDs from accounts with non-traditional assets. You are allowed to take what’s called an “in-kind distribution,” which gives you the option to disburse percentages instead of cash. However, this becomes quite cumbersome and difficult. An in-kind distribution, you would definitely need a comprehensive appraisal on the asset to ensure the value of the asset is taxed appropriately.

IRA assets can also be distributed “in-kind,” meaning distributed to the individual directly. It must be accomplished and reported at FMV on the day of the distribution, AND, the asset MUST BE correctly re-titled in the name if the individual – regardless of the asset. This must be done correctly through the IRA Custodian/Trustee, so the IRA Owner or 401(k) participant must review the process with their financial institution.

You would not believe the number of IRA holders who wait until the last minute to take their RMDs, so again, RMDs must be taken by the end of the year; so be sure to get your requests into your brokerage or custodian early, thus ensuring you don’t run into problems that would make you subject to an IRS penalty.

This aggregation rule DOES NOT apply to 401(k) RMDs. If you have any additional questions, then please speak to a CPA or tax professional.


It’s Tuesday at 2 again and it’s December 2nd, so we’re going to talk about something that has to be taken care of before the end of the year – and that’s RMDs, which stand for Required Minimum Distributions. They’re just exactly what they sound like – they’re required and it’s a minimum amount of money that you have to take out of your traditional IRA if you turned 70 prior to July 1st of this year. If you turned 70 prior to July 1st, by the end of this year you’re going to be 70 1/2-years old and the IRS requires that when you turn 70 1/2-years old, you start taking out required minimum distribution from your IRA.

Now, this only applies to traditional IRAs.  If you have a Roth IRA, you’re not required to take RMDs out of a Roth IRA.  The other one caveat is if you turn 70 in 2014 prior to July 1st, you actually have until April 1st to take your first RMD.  This year, you don’t have to take your first RMD until April 1st, but then you also have to take another RMD in 2015 prior to December 31st, got it?

Let’s assume that you have already been 70 1/2-years old and you’ve been taking required minimum distributions – you’ve got until the end of this year to take the required minimum distribution for this year. One of the questions we get sometimes is, ‘I have more than one IRA account – can I take all of my RMDs from one account?’ and the answer is yes. What you do is, let’s say you have an IRA at a brokerage house and you have an IRA at a self-directed IRA custodian, such as Sunwest Trust, you aggregate those two account balances together and then you apply the life expectancy table to determine what your required minimum distribution is going to be for that year.

Now, once you determine that, either custodian – meaning the custodian of the brokerage house or the self-directed IRA custodian – can help you to calculate that number. But once you calculate that number, you can take it all out of the account at the brokerage house.  Let’s say you have something at the self-directed custodian that’s illiquid; if it’s real estate or some ownership in a private company that is not easily sellable right now – you could just liquidate some stocks and bonds, or something that you have in your brokerage account and take your entire RMD from there.

It doesn’t have to come out of each account; you just have to aggregate all the accounts together to calculate the number and then take it out of one or several of the accounts. You can take it out pro rata if you want it to, that would be completely up to you.

The other thing to keep in mind, because of this RMD problem, is if you have an investment that is illiquid – if you’re getting close to 70 1/2-years old and you decide to invest in something, be careful and don’t invest in something that’s illiquid if you don’t have some other source of money in another IRA account somewhere that you can take your RMD from. Because it makes it difficult then to get your RMD out – you can take it on an incline basis.  If you own a piece of real estate, you can take a piece of that real estate out, but that becomes a little cumbersome and difficult and you are definitely going to need a full-blown appraisal before you do that. Because the IRS is going to want to make sure that you take it out at the correct value, because that’s when the taxable event happens.

If you turned 70 prior to July 1st of this year and you’ve got a traditional account, you better start thinking about what you’re going to do with your RMDs – you can take them out of any account, any IRA account that you’ve got. It doesn’t have to come out of each IRA account – you just have to aggregate the number all together. Hopefully, this has given you some information, and if you’ve turned 70 1/2-years old, or you’re already used to taking your RMDs, be sure that you get a hold of your custodian and make sure you get that RMD out before December 31st. It seems like we get a lot of calls at noon on December 31st from people all needing to get their RMD out and what’s even worse is we get some calls on January 2nd and it’s too late –  the penalties would apply then. You need to make sure that you get that out prior to December 31st, prior to the close of business of your custodian December 31st.

Now, they might write you a check on December 31st or December 30th – you might not get it until January, but it would be recorded as coming out, it will be a taxable event in 2014. Again, if this is your first year, you’ve got until April 1st, but if it’s a year after, you’re 72 or 73 years-old, then it has to be done by December 31st.

Thank you for taking the time to watch Tuesday at 2 and I look forward to seeing you again next week. Thanks!

Required Minimum Distributions Rules For IRA Holders Who Turn Age 70 1/2 This Year was published on:

Terry White

About Terry White

I started my business career after getting my degree in Accounting from the University of New Mexico in 1983. My first job was as a controller for a local title company, and in 1987 I started First Financial Escrow, Inc. Over the years I played a part in several startup companies including First Financial Equities, Inc., First Financial Trust, Inc., First Financial Marketing, Inc. and Asset Ventures, Inc. In 1997 First Financial Escrow, Inc. was able to purchase the escrow accounts from Sunwest Bank and changed its name to Sunwest Escrow. As the market changes, Sunwest has grown and changed along with it. Besides my wife, Sheila, we have three boys, two daughters-in-law, one grandson, another grandson on the way and a future daughter-in-law. Sunwest is my passion, and I enjoy coming to work every day to see what will happen next. I enjoy fly fishing, spending time in Colorado, biking and watching my boys play soccer.