If you have one or more traditional IRAs set up in your name and you will be age 70 1/2 or older at year end or you have an inherited IRA, you must comply with the required minimum distribution (RMD) rules 
or face an expensive penalty. These rules force account owners to take annual withdrawals from their IRAs and pay the resulting federal income tax. The same rules also apply to simplified employee pension (SEP) accounts and SIMPLE-IRAs, because they count as traditional IRAs for this purpose. If you own Roth IRAs, those accounts are exempt from the RMD rules during your lifetime.
Complying with the RMD rules is an important tax issue for traditional IRA owners who are age 70 1/2 and older and for beneficiaries of inherited tax-favored retirement accounts. If you think the RMD rules are just a minor nuisance that you can ignore, think again! You need to make the required RMD by December 31 to avoid the 50 percent penalty for noncompliance which is one of the harshest tax penalties assessed by the IRS!
While you may believe that your broker or IRA custodian/trustee is responsible for computing the correct RMD because they may be notifying you of the amount to be taken each year, they are not! It is your sole responsibility! Some financial advisors/brokers are now requiring that their clients sign off that they agree to the RMD computed by the advisor. Many persons sign off because they are relying upon their advisor’s computation and because they do not know how to compute the RMD themselves. By knowing how the RMD rules work and by taking personal responsibility for complying with them, you can avoid the 50 percent penalty.
Your annual RMD amount usually equals the total of your traditional IRA balances (including any SEP or SIMPLE-IRA balances) as of December 31 of the previous year divided by a life expectancy divisor provided by the IRS. If you have an inherited IRA, the RMD rules are different. The RMD amount must be recalculated annually because your IRA balances as of the end of the previous year and your life expectancy divisor changes annually.
When you own several traditional IRAs (including any SEP accounts or SIMPLE-IRAs), you must withdraw at least the annual RMD amount based on the combined balance of all those accounts. However, there’s no requirement to actually withdraw money from any specific account. As long as you withdraw the proper RMD in total, you can take the money out of as few or as many accounts as you desire.
You should consider immediately contacting your CPA tax adviser and requesting that the CPA compute your RMD for the calendar year.
Be sure to read the disclaimer page on our blog. This blog is for educational purposes only and should not be considered as the rendering of tax advice.
