Deadline Nears for Mandatory IRA Distributions
But you can direct up to $100,000 of your annual distribution to charity.
If you are at least 70½ years old, you must take a taxable distribution from your traditional IRA or employer-provided retirement plan by the end of the year. If you miss the December 31 deadline, you'll be hit with a stiff penalty equal to half of the amount you failed to withdraw.
But there's an exception if you're still on the job. Employees who continue working past age 70½ are not subject to mandatory distributions from their company retirement plans until they retire. However, they still must take distributions from their IRAs.
IRA owners who turned 70½ between July 1 and December 31, 2013, can delay their first distribution until April 1, 2014. But if they do, they have to take a second distribution by December 31, 2014, and an annual distribution by December 31 every year after that. A double payout could substantially boost your 2014 income -- and your 2014 tax bill.
Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
Mandatory distributions also apply to owners of inherited IRAs and other retirement accounts. You can either take annual distributions based on your own life expectancy or follow another set of distribution rules that require you to empty an inherited IRA by the end of the fifth year after the owner's death. Although there are no required minimum distributions for Roth IRA owners -- regardless of age -- non-spouse beneficiaries who inherit a Roth are subject to the mandatory distributions.
Of course, you can always withdraw more than the minimum amount required by law, but you'll pay taxes at your ordinary rate on the entire amount you withdraw from traditional IRAs and other tax-deferred retirement accounts (except for any portion that represents after-tax contributions). Withdrawals of earnings from Roth IRAs are tax-free once the account has been opened five years and you are at least 59½ years old. (Because Roth contributions are made with after-tax dollars, you can withdraw your contributions at any time, regardless of age).
If you're in a charitable mood, you can support your favorite cause and trim your 2011 tax bill at the same time. Retirees who are 70½ or older can direct up to $100,000 of their IRA distribution directly to a charity and exclude the donated amount from taxes. You can't double dip and claim a tax deduction for your charitable contribution, but by excluding your donation from your adjusted gross income, you'll lower your tax bill and possibly qualify for other tax breaks tied to income limits.
Block joined Kiplinger in June 2012 from USA Today, where she was a reporter and personal finance columnist for more than 15 years. Prior to that, she worked for the Akron Beacon-Journal and Dow Jones Newswires. In 1993, she was a Knight-Bagehot fellow in economics and business journalism at the Columbia University Graduate School of Journalism. She has a BA in communications from Bethany College in Bethany, W.Va.
-
Use An iPhone? You May Be Hearing From A Class-Action Lawsuit Group
A handful of suits against the iPhone maker seek to crack down on everything from app store purchases to messaging.
By Keerthi Vedantam Published
-
Capital One/Discover: What's In Their Wallet For You?
Push back on Capital One's planned merger with Discover is growing with one group of consumer advocates calling for a public hearing.
By Keerthi Vedantam Published
-
How Much Richer Could You Be Without a Big Tax Refund?
Tax Refunds A big tax refund isn’t a reason to celebrate if you overpaid throughout the year. Here’s how much money your interest-free loan to the government could have cost you.
By Katelyn Washington Last updated
-
How to Calculate Your Adjusted Gross Income — and What It Means
Income Tax Your eligibility for certain money-saving tax breaks depends on your adjusted gross income.
By Ella Vincent Published
-
Ways to File Your Taxes for Free
Free Filing Tax season is in full swing, and if you’re looking to save money, there are several ways to file your taxes for free.
By Kelley R. Taylor Last updated
-
IRS Issues Another Tax Warning for Wealthy, High Earners
Tax Enforcement Wealthy non-filers could pay more tax than they owe if the IRS files for them.
By Katelyn Washington Last updated
-
Types of Income the IRS Doesn't Tax
Income Tax It may feel like the IRS taxes most of your hard-earned money, but some types of income are nontaxable.
By Kelley R. Taylor Last updated
-
Why You’ll Still Pay Oklahoma Grocery Tax
State Tax Oklahoma is eliminating state grocery taxes, but that doesn’t mean groceries will be tax-free.
By Katelyn Washington Last updated
-
Last-Minute Tax Savings Guide for 2023
Tax Savings April 15 is weeks away, so it's not too late to save your 2023 taxes.
By Sandra Block Published
-
Why You Should Care About Your 2026 Taxes Now
Tax Planning It's not to early to prepare for the possibility that your taxes will go up in 2026.
By Sandra Block Published