Were You Born Between Jan. 1, 1948 and July 1, 1948?

Were You Born Between Jan. 1, 1948 and July 1, 1948?

by Julie Jason on Mar 28, 2019

If you turned 70 between Jan. 1, 2018 and June 30, 2018, you also turned 70 1/2 in 2018. That means you have to start taking mandatory withdrawals (“required minimum distributions" or RMDs) from your traditional IRA accounts and pay taxes on those withdrawals.   

The reason I’m bringing up these birthdays is this: If you haven’t taken your first RMD (for 2018), you only have a few more days to do that.   

April 1, 2019 is the deadline. If you did not take your RMD for 2018, call your broker or adviser for assistance in taking that withdrawal.     

This is what you need to know:

1) RMDs are mandated yearly withdrawals that must occur each and every year over your lifetime after you reach the age of 70 1/2. 

2) Each withdrawal from a traditional IRA (not Roth IRAs) is subject to income taxes.

3) Your first RMD can be paid in the year you turn 70 1/2, or you can opt to wait until April 1 of the following year (called the “required beginning date”). That’s April 1, 2019, for those of you who were born in 1948 in the first half of the year (before July 1, 1948).

So, let’s take an example of “John” (born Jan. 1, 1948), who has $100,000 in his traditional IRA at the end of 2017. He is not married and has no other IRAs or retirement accounts. Say John did not know about RMDs, or that he was hospitalized at the end of the year. Now, having read this blog, he knows he needs to act. What should he do?

John’s 2018 RMD is $3,650, which is calculated on the Dec. 31, 2017 value ($100,000) divided by 27.4, the divisor mandated by the IRS in Table III of IRS Publication 590-B (“Distributions from Individual Retirement Arrangements (IRAs)”).

John would need to take $3,650 out of his IRA before April 1, 2019, to satisfy his 2018 RMD. But it’s important that John not forget to take his 2019 RMD before the end of 2019. That means he would be taking two RMDs in 2019. That will not happen again, since RMDs are yearly mandates. There is only one exception to this rule and that’s the first year only, as in John’s case. 

If John forgets to act before April 1, 2019, he will owe the IRS a penalty of 50 percent of the $3,650 he did not withdraw on time. That’s a penalty of $1,825. 

A few more points: While I’m focusing on birthdays in 1948, Joe Gaynor, Director of Retirement & Income Solutions at Fidelity Investments, points out that people born earlier (between July 1, 1947 and Dec. 31, 1947), also turned 70-1/2 in 2018.  They also have an RMD obligation for 2018.

Another point: You can avoid paying taxes on an RMD if you give the money away to charity.  But, there are limits and specific requirements on how to do that.  More on that subject in a later post. . .  

 

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