Don’t Forget to Take Your IRA Required Distribution

I turned 70½ in June of this year. Do I have to take the required minimum distribution from my IRAs by December 31?

For you and anyone else who turned 70½ this year, you can wait until April 1, 2014, to take the first required distribution, but you’ll have to take your second distribution by December 31 of the same year. Anyone older than that will need to act quickly to take your required minimum distribution from your IRAs before the December 31 deadline.

To calculate your required distributions, take the value of each of your traditional IRAs as of the end of 2012 (Roth IRAs are not subject to required distributions), then divide each one by the IRS life expectancy figure based on your age. See Calculating Your Required Minimum Distributions for details; your IRA administrator can also help.

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You need to calculate the required distribution from each IRA separately, but you don’t need to take that much from each account. You just need to add up how much you must withdraw from all of your accounts, then take the total amount from one or more IRAs. (Required distributions from 401(k)s, on the other hand, must be taken separately from each account.) But be very careful with your calculations – the IRS has been cracking down on retirees who don’t take their required distributions or don’t take the correct amount.

Ted Sarenski, a CPA and financial planner in Syracuse, N.Y., recommends looking at all of your IRA accounts before deciding which ones to tap for your withdrawal. “If the investments in one account aren’t doing as well as the others, you may want to take the withdrawal from that account,” he says. Choosing one account for the withdrawals won’t affect your tax liability -- you’ll owe the same amount no matter which account you tap -- but taking the full amount of your required distributions from one account can help you avoid selling investments in other accounts that you’d like to keep.

Some IRA administrators automatically send you a check for your required distribution from each account before the December 31 deadline. If you plan to take all the money from just one or two accounts, contact your other IRA administrators right away and tell them not to send you the check this year. (Many IRA administrators do not send an RMD check automatically unless you’ve signed up for an automatic withdrawal program. Vanguard, for example, automatically distributes RMDs if you sign up for its RMD Calculate-and-Distribute Service and choose a date -- or frequency -- for your distributions.)

Contact your IRA administrator as soon as possible. You technically have until the end of business on December 31 to make the withdrawal, but it’s a good idea to take action soon, especially if you need to sell investments and wait for the trades to settle before you have enough cash in the account for the withdrawal. TD Ameritrade, for example, recommends contacting the company by December 20 to guarantee distribution by December 31.

Another option for people over age 70½ is to make a tax-free transfer of up to $100,000 from your IRA to a charity. The money transferred counts as your required minimum distribution but is not included in your adjusted gross income (you cannot take a charitable deduction for the money, too). This has been an option for the past several years, but Congress usually doesn’t renew the law until the very last minute. Last January, Congress extended the tax-free charitable transfer law through 2013. It helps to set aside even more time for the request to be processed and the charity to cash the check -- Fidelity recommends filling out the forms by December 15.

The money must be transferred directly from your IRA to the charity; you won’t qualify for this tax-free transfer if you withdraw the money yourself then give it to the charity (in that case, you can deduct the charitable contribution if you itemize, but the withdrawal will be added to your adjusted gross income). Fidelity, for example, has an IRA one-time withdrawal form with which you can have a check made out to the charity from your IRA, or you can send the charity a check from your IRA if you have check-writing privileges established for the account. See Who Can Transfer IRA Funds to Charity? for details.

For more information about required minimum distributions, see our RMD special report.