PHOENIX— The Internal Revenue Service recently reminded taxpayers born after June 30, 1944 and before July 1, 1945 that in most cases, they must start receiving required minimum distributions from Individual Retirement Accounts and workplace retirement plans by Friday, April 1, 2016.
The April 1 deadline applies to owners of traditional (including SEP and SIMPLE) IRAs but not Roth IRAs. Normally, it also applies to participants in various workplace retirement plans, including 401(k), 403(b) and 457(b) plans.
The April 1 deadline only applies to the required distribution for the first year. For all subsequent years, the required minimum distributions must be made by Dec. 31. So a taxpayer who turned 70½ in 2015 and who receives the first required distribution (for 2015) on April 1, 2016, for example, must still receive the second required minimum distribution by Dec. 31.
Affected taxpayers who turned 70½ during 2015 must figure the required minimum distributions for the first year using the life expectancy as of their birthday in 2015 and their account balance on Dec. 31, 2014. The trustee reports the year-end account value to the IRA owner on Form 5498 in Box 5. Worksheets and life expectancy tables for making this computation can be found in the appendices to Publication 590-B.
Most taxpayers use Table III (Uniform Lifetime) to figure their required minimum distribution. For a taxpayer who reached age 70½ in 2015 and turned 71 before the end of the year, for example, the first required distribution would be based on a distribution period of 26.5 years. A separate table, Table II, applies to a taxpayer married to a spouse who is more than 10 years younger and is the taxpayer’s only beneficiary. Both tables can be found in the appendices to Publication 590-B.
Though the April 1 deadline is mandatory for all owners of traditional IRAs and most participants in workplace retirement plans, some people with workplace plans can wait longer to receive their required minimum distribution. 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. For more information, see Tax on Excess Accumulation in Publication 575. 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 these accruals.
The IRS encourages taxpayers to begin planning now for any distributions required during 2016. An IRA trustee must either report the amount of the required minimum distribution to the IRA owner or offer to calculate it for the owner. Often, the trustee shows the required minimum distribution amount in Box 12b on Form 5498. For a 2016 required minimum distribution, this amount would be on the 2015 Form 5498 that is normally issued in January 2016.
IRA owners can use a qualified charitable distribution paid directly from an IRA to an eligible charity to meet part or all of their required minimum distribution obligation. Available only to IRA owners 70½ or older, the maximum annual exclusion for qualified charitable distributions is $100,000. For details, see the QCD discussion in Publication 590-B.