April 1: Deadline for the First RMD

If you turned age 70¹/₂ in 2013 and did not take any required minimum distribution (RMD) from your IRA and/or qualified retirement plan, you must do so no later than April 1, 2014, in order to avoid any penalty.

RMDs from IRAs. Because of your age, you must begin taking mandatory distributions. This is so whether or not you are still working.

You can figure RMDs separately for each IRA account that you have. Alternatively, you can total your RMDs and then take the distributions from one or more of your accounts. This flexibility enables you to tap the accounts that are underperforming while leaving the better performing accounts intact. If you have different beneficiaries named for each account, this strategy also allows you to effectively even up the shares you want your beneficiaries to inherit.

Usually, distributions are taken in cash. However, there is nothing preventing you from taking an “in kind” distribution. Thus, if you have stock that you like, you can take it as your RMD and avoid paying commissions to reacquire the same stock if you’d taken your RMD in cash. However, the stock takes a new basis and holding period at the time of the RMD; you cannot count the time that the stock was held in your IRA when determining your capital gain or loss upon the future sale of the stock.

The opportunity to transfer up to $100,000 from your IRA directly to a pubic charity on a tax-free basis expired at the end of 2013. This tax break had allowed your RMD up to the $100,000 limit to be nontaxable. This break will not apply to your second RMD this year, which must be taken by December 31, 2014, unless Congress extends it.

RMDs from qualified retirement plans. Figure your RMD separately for each qualified plan in which you have an account. Thus, if you have two 401(k) plans from different employers, figure the RMD from each plan’s account.

If you are still working for a company that has a qualified retirement plan, you may be able to postpone RMDs until retirement if the company’s plan allows for such postponement. This break does not apply if you own 5% or more of the company.

How to figure RMDs. Distributions are based on the account balance for the prior year. For the first RMD taken by April 1, check the account balance on December 31, 2012.

The financial institutions at which IRAs are held usually provide guidance on figuring RMDs. You may want to check their figures with your tax advisor or do it yourself to make sure the amounts are correct. In figuring your RMDs, be sure to use the correct IRS table from Publication 590 for this purpose:

• Use Table III (Uniform Lifetime Table) unless you have a spouse who is more than 10 years younger.
• Use Table II (Joint Life and Last Survivor Expectancy Table) if your spouse is more than 10 years younger than you.

Note: Table I (Single Life Expectancy) is only for beneficiaries of inherited IRAs.

Bottom line: Don’t forget to take your second RMD or RMDs no later than December 31, 2014. This distribution is based on the account balance on December 31, 2013, minus the April 1 distribution.