Beware the April 1 IRA Deadline

Quick action may be necessary to avoid 50% penalty

This story has nothing to do with your tax return. But it has everything to do with an April 1 deadline for owners of traditional IRAs who turned age 70 1/2 last year. Once you reach that magic age, our beloved Internal Revenue Code says you must start taking mandatory annual withdrawals from your traditional IRAs — including any simplified employee pension (SEP) accounts and SIMPLE-IRAs that you may have set up as a small business owner.

These mandatory payouts are called required minimum distributions, or RMDs. If you fail to take them, you can be hit with a stiff penalty. Of course, taking RMDs also means getting stuck with the resulting extra federal income tax bills. In fact, the whole idea behind the RMD rules is to force folks who would otherwise leave their IRAs untouched to start taking taxable withdrawals. That way, the Feds get their share of your IRA money sooner rather than later.

Required minimum distribution basics
Your first RMD must be taken by no later than April 1 of the year after the year you turn age 70 1/2. So if you turned 70 1/2 last year, the April 1 deadline for your initial RMD is almost upon you. Your initial RMD is actually for the 2013 tax year, even though you might not withdraw it until this year.

If you fail to withdraw at least the initial RMD amount by April 1, the IRS can sock you with a penalty equal to 50% of the shortfall (the difference between the RMD amount you should have taken out for the (current) 2013 tax year and the amount you actually took out, if anything). That 50% penalty is one of the most punitive to be found in the Tax Code, and it is way too expensive to ignore.

Now, if you took traditional IRA withdrawals during 2013 that equaled or exceeded the amount of your initial RMD, you are blissfully unaffected by the April 1 deadline. All you have to do now is remember to take out your second RMD, for the 2014 tax year, by Dec. 31 of this year.

But if you have not yet withdrawn the full amount of your 2013 RMD, the April 1 deadline is very much for real, and you must withdraw enough between now and April 1 to satisfy the IRS. If you fail to do so, you’ll be charged the 50% penalty on the shortfall. Ouch!

The RMD amount that you must withdraw by April 1 equals the combined balance of all your traditional IRAs divided by a life-expectancy factor based on your age as of Dec. 31, 2013. Take that number and subtract any traditional IRA withdrawals you took during 2013. The remainder is what you must withdraw by April 1 to avoid the 50% penalty for failure to comply with the RMD rules. For full details on how to calculate RMDs and all the other RMD rules, see Understanding the IRA Withdrawal Rules.

The last word
Now for some good news: if you have several traditional IRAs, you need not take an RMD from each one. You can figure out your total RMD amount for the 2013 tax year and take the necessary money out of any one or more of your IRAs between now and April 1.

More good news: Roth IRAs established in your name are exempt from the RMD rules for as long as you live. So you can continue to invest the full amount of your Roth IRA balances and thereby continue to produce tax-free income for as long as you wish. That is just one more reason to love Roth IRAs.

Written by Bill Bischoff for Market Watch, March 26, 2014.

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About admin

Please allow me to introduce myself; I am Jeffrey Bennett, President of Kettle Moraine, Ltd., the parent of Sierra Madre Precious Metals. I have been married for 52 years with two children and four grand-children, a veteran of Viet Nam, student of history (both American and film), and was host for fifteen years of Perspectives on America on the alternative airwaves, covering such subjects as, health and wellness, news, political satire, education and editorial commentary on current events through the teaching of history, and Protecting Your Wealth. In early 2018, I took a several month hiatus to complete some family business but returned to airwaves April 17, 2018). At the age of ten, I sat in a bank-vault in the Citizens Bank of Mukwanago, Wisconsin with my grandfather going through bags of old American Peace dollars, hand-selecting each coin as dated rolls of 20 coins were carefully put together and rolled. Learning of the history of these beautiful pieces of Americana, I asked my grand-father, "Why are we doing this?" to which he replied, "Because someday they are going to do the same thing with the silver in our money that, that (S.O.B.) Roosevelt did with gold in 1933." It took only six-years for his prediction to come to pass at the hands of a disciple of Roosevelt's... and what will a Federal Reserve 'dollar' purchase today - and what will that old 90% Silver Peace Dollar purchase? Although at the age of ten, there was little understanding of the meaning of it all, over the next half-century I became well-versed on the subject matter. During this summer of my education, I began to purchase silver coins as a collector and some small, international gold coins two years later - not an easy feat in the shadow of the Roosevelt confiscatory policies of 1933. Although those policies remained in effect until the mid-1970's, it was not until 1991 that I found that one could make a living providing precious metals and collectible, historic numismatic coins to a willing and concerned clientele. It was also during that year, that I began a relationship with one of the first Trust companies to give the public access to gold and silver as part of an Individual Retirement Account (IRA) - and Kettle Moraine, Ltd., founded in 1995, but have ceased providing service due the the intense change-over of the provider. In November 2011, after a 15 month broadcast on another network, I returned to the airwaves with my then revamped program, Life, Liberty & All That Jazz, and for over a quarter-century, I have been proud to serve the family of listeners of my numerous broadcast programs for physically-held precious metals for investors and collectors alike. On March 23, 2020 I launched my brand new - appropriately named program, The Edge of Darkness on the Republic Broadcasting Network, and thus continue to  remain available to our long time clients and their families. Ah yes - find out what "inter-generational" wealth provision has done for our clients over the past three decades. Don't buy the sizzle of that steak until you understand the cost! In other words, don't buy the bull being dispensed by the 'rare coin' pitchmen until you understand the full story. We, at Sierra Madre Precious Metals, will be proud to serve your needs.
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