If You Turned 70 Between July 1, 2010, and June 30, 2011, Watch Out For the Double Tax Whammy!

A Required Minimum Distribution (RMD) is a mandatory taxable distribution for those owning IRA/Pre-Tax saving investments. You must take your first RMD by April 1 of the first tax year after you turn 70.5. Watch out, as you may end up with a mandatory double whammy distribution in your first RMD tax year, if you are not careful.

RMD’s are the mandatory taxable distributions of funds out of IRA and other pre-tax investment vehicles in order for the US Government to begin collecting taxes on these deferred assets. (Click Here for a good IRS summary chart.)

If you have turned 70 between Jan 1 and June 30, 2011 you have a decision to make. You may defer your distribution until April 1, 2012, HOWEVER, if you do, you will have two distributions mandated next year, 2012; this year’s (2011) delayed RMD, and your regularly scheduled RMD that is mandatory by the end of 2012.

If you fall into this window, consider the possibility of eliminating the double whammy by taking your 2011/first year RMD, by 12-31-2011.

There is one very small exclusion from the mandatory RMD commencements, which applies to individuals working at a company, who are not a 5% owners of the company, and who have not taken a RMD yet. If you fit into this small little box, you MAY be offered an exception to the RMD. Understand the IRS has offered tax payers ample deferral time, i.e. 70.5 years, and are not in favor of missing their eventual tax payments. Bottom line, if you think you fit into this little box, make sure you do, before claiming exemption from your RMD!

Every situation is different, and remember to consult your CPA or tax advisor for exact numbers. Feel free to contact us for further clarifications and estimates on your RMD amounts as well.

Have a Great Day!

JK

214-706-4300

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