Turning age 70 ½ years old – your one and only opportunity to delay taking your required minimum distribution.

If you were born between July 1, 1944 and June 30, 1945, you will reach the magical age of 70 ½ years old in 2015 and will have to deal with the required minimum distribution rules from your traditional IRA account. However, you have an option. Technically, the rules state that you must begin taking your required minimum distributions on or before April 1 of the year following the year you turn age 70 ½ years old. Translated, this means that you must start taking your required minimum distributions from your IRA by April 1, 2016.

 

For the first year (2015) of being subject to the required minimum distribution rules and for this year only (2015), you have to option to delay taking part or all of your 2015 required minimum distribution until as late as April 1, 2016. There is a downside to this decision though. Whatever amount of your 2015 required minimum distribution that you push over into 2016 will be taxed as 2016 income. This is in addition to the normal 2016 required minimum distribution. So you would have to pay income tax on both amounts in 2016.

 

That may not be a bad trade especially if your 2015 income will be higher than your 2016 income. You may be able to save income tax by delaying some or all of your 2015 required minimum distribution to 2016 when you may be in a lower tax bracket. If possible, I recommend holding up taking your 2015 required minimum distribution until late in the 2015 year. This will give you the best chance to see what your 2015 income will be and estimate if your 2016 income will be at a lower tax bracket. Then you can make a decision on the advantages of delaying your 2015 required minimum distribution until 2016. Remember, this is your one and only opportunity to make this decision.

 

Keep in mind that the required minimum distribution rules do NOT apply to Roth IRA accounts. By the way, when was the last time you reviewed your IRA primary and contingent beneficiary designations? Having proper beneficiary designations is probably one of the most important things you should do for your IRA account.

Posted in: Retirement Planning

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