Under the so-called required minimum distribution rules, you must begin taking annual payouts from your traditional IRA by no later than April 1st of the year after you turn 70 1/2. (If you have a Roth IRA, it is exempt from these rules.)
• It doesn’t matter if you would prefer to leave your traditional IRA untouched. You must begin taking required minimum distributions by no later than the April 1st deadline.
• If you don’t, the IRS can assess a penalty equal to 50 percent of the difference between what you should have withdrawn from the account under the required minimum distribution rules and what you actually took out (if anything). That’s a very harsh penalty, so this isn’t something you want to ignore.
• Your required minimum distributions are taxable.
As you might suspect, the whole idea here is to force people who would otherwise leave their traditional IRAs untouched to begin emptying their accounts and paying the resulting income taxes.
Contact your Vrakas/Blum tax advisor to find out how the required minimum distribution rules affect you and how you can avoid getting hit with the 50% penalty.
© 2013 Thomson Reuters/Tax & Accounting