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Deadline Approaches to Take First Required Minimum Distribution from Retirement Plans for 2018 by Rick D. Bazzani, CPA

Posted on March 20, 2019 by Rick Bazzani

Taxpayers who turned 70½-years-old during the 2018 calendar year have until April 1, 2019, to take their first required minimum distributions (RMDs) from their individual retirement accounts (IRAs) and workplace retirement plans.

In general, retired individuals age 70½ and older have a deadline of December 1 to take their annual RMDs from retirement savings accounts that include Simplified Employee Pension plans (SEP IRAs) and Savings Incentive Match Plans for Employees (SIMPLE IRAs) as well as of 401(k), 403(b) and 457(b) plans. Because RMDs are considered taxable income, they do not apply to individuals’ Roth IRA. Failure to take a required minimum distribution and pay the taxes on the distributed amount can result in penalties as high as 50 percent of the undistributed amount. However, the law carves out two exceptions to this rule.

The first exemption applies to working taxpayers who may postpone their RMDs until April 1 of the year in which they actually retire from work.

Secondly, taxpayers have a one-time opportunity to defer until April 1 of the following year their very first RMD in the year they turn 70½. When this occurs, taxpayers must then take a second catch-up RMD by Dec. 31 of that same year. Therefore, a taxpayer who was born between July 1, 1947, and June 30, 1948, and who turned 70 ½ in 2018, may elect to delay his or her first RMD until April 1, 2019. While this will effectively allow the taxpayer to defer recognition of the RMD amount as income until 2019, he or she should be prepared for the tax liabilities he or she will incur by taking two taxable RMBs in 2019. The only way for taxpayers to avoid having both amounts included in their income for the same year is to make their first withdrawal by Dec. 31 of the year they turn 70½ instead of waiting until April 1 of the following year.

The amount of a taxpayer’s RMD in any given year is based on a variety of factors, including the balance in their retirement accounts as of the end of the immediately preceding calendar year divided by a distribution period from the IRS’s “Uniform Lifetime Table.” Taxpayers preparing to file their tax returns can find the RMD amount by looking at IRS Form 5498 that they should receive from the trustee, bank or brokerage that holds the accounts.

About the Author: Rick D. Bazzani, CPA, is a senior manager with Berkowitz Pollack Brant’s Tax Services practice, where he provides individuals with a broad range of tax-efficient estate-, trust- and gift-planning services. He can be reached in the CPA firm’s Ft. Lauderdale, Fla., office at (954) 712-7000 or at info@bpbcpa.com.

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