As we near the year-end, there are a number of financial planning and tax related items that you should consider. One such item, for those age 70 1/2 and older, is IRA (SEP, SIMPLE IRA, qualified plans and 403b) account Required Minimum Distributions (RMD). At age 70 1/2 IRA owners must begin taking minimum distributions from their IRA, according to IRS guidelines, and pay tax on those distributions. If you are over age 70 1/2, you should verify with your financial advisor that you hve satisfied distribution requirements. There is an excise tax for not taking a required distribution, and it can be severe, 50% of the amount of shortfall from what you should have taken.
At this time of year, we receive telephone calls from folks that are not working with a financial advisor (and some that are), wondering if they are required to take a distribution; and occasionally, if a distribution is required, how can they satisfy the distribution requirement if they don’t have cash in their account. These calls can be a bit frantic, especially as we near year-end, with no cash in their account, and the caller realizes they may have a rather substantial excise tax if they do not take a distribution.
What many people do not realize is the distribution can be taken either as cash or in-kind (e.g. as stock or mutual fund). The in-kind distribution is still taxable, as a distribution, even though the in-kind asset has not been sold. In-kind distributions are handy, especially if liquidation of the holding means a waiting period (known as settlement) before distribution of cash. Another advantage to an in-kind distribution is there is no change to your asset allocation.
Contact a Summit Wealth Advocates advisor if you have any questions regarding distributions from your IRA.