The Internal Revenue Service (IRS) is reminding taxpayers born before July 1, 1945, that they must receive payments from their individual retirement arrangements (IRAs) and workplace retirement plans by Dec. 31.
Required minimum distributions (RMDs) are payments that normally must be made by the end of 2015, however, a special rule allows first-year recipients of these payments to wait until as late as April 1, 2016 to receive their first RMDs. People born after June 30, 1944 and before July 1, 1945 are eligible for this special rule.
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These distribution rules apply to people who receive Simplified Employee Pension (SEP) and Savings Incentive Match Plans for Employees (SIMPLE) IRAs as well as participants in various workplace retirement plans, like 401(k), 403(b) and 457(b) plans. However, they do not apply to Roth IRAs while the original owner is alive.
An IRA trustee must report the amount of the RMD to the IRA owner. Trustees can also offer to calculate it for the owner.
The special April 1 deadline only applies to the RMD for the first year. After the first year, the RMD must be made by Dec. 31 (year’s end). For example, a taxpayer who was born after June 30, 1943 and before July 1, 1944 and received the first RMD for 2014 on April 1, 2015, must still receive a second RMD by Dec. 31, 2015.
RMD for 2015 is based on the taxpayer’s life expectancy on Dec. 31, 2015, and their account balance on Dec. 31, 2014. For a taxpayer who turned 72 in 2015, the required distribution would be based on a life expectancy of 25.6 years.
Though the RMD rules are mandatory for all owners of traditional, SEP and SIMPLE IRAs and participants in workplace retirement plans, some people in workplace plans can wait longer to receive their RMDs. Usually, employees who are still working can, if their plan allows, wait until April 1 of the year after they retire to start receiving these distributions. Employees of public schools and certain tax-exempt organizations should check with their employer to see if they need to comply with this rule as well. When in doubt, check with your employer or check the IRS website.