Did you turn 70 ½ this year? If yes, its time to start withdrawing funds from your traditional IRAs, including SEP IRAs and SIMPLE IRAs. These mandatory withdrawals are known as required minimum distributions (RMDs). Here are some things to keep in mind:
The first deadline is April 1, 2015 (not April 15). That is called required beginning date (RBD). You must take your RMD for 2014 by that date (note: you can take it before April 1st). All RMDs for future years must be taken by calendar year-end.
Here’s a suggestion, take your first RMD by December 31. If you wait until April 1 of the next year to take your first RMD, you’ll have to report two RMDs on your 2015 tax return (the first RMD and 2015’s RMD). Two RMDs could have a significant impact on your income taxes in 2015. If you take two RMDs in one tax year, you’ll increase your income. This could lead to phase-outs of tax benefits and trigger additional “stealth taxes,” which happen once your income goes above certain dollar limits.
Pay special attention to your RMDs. If you don’t take your RMDs by the appropriate deadlines, you’ll be hit with a 50% penalty.
You should analyze your tax situation before year-end to determine whether to bunch the RMDs into one tax year or separate them over two different tax years. It is critical to work with professionals with knowledge in this area. IRAs are a different breed with special rules. Make sure the professional(s) you deal with knows the nuances of these rules.