Required minimum distributions
Retirees who hold IRAs and similar pension plans are required to withdraw certain amounts each year beginning shortly after they turn age 70 ½. These amounts, called required minimum distributions (RMDs), are based on life expectancy and are required because Congress is more eager than a 5-year old child at Christmas time to collect tax that has been deferred on these holdings. (Congress is so eager, in fact, that it imposes a Grinch-like 50% penalty on those who fail to withdraw RMDs on time – a penalty assessed on top of the applicable tax.) Generally each year’s RMD must be withdrawn by December 31 of that year, but a one-time delay is allowed for the first (and only the first) withdrawal following the age 70 ½.
This grace period is relevant currently for recipients who have not yet begun drawing RMDs, and who were born after June 30, 1947 and before July 1, 1948. Those individuals may delay their initial withdrawal until April 1, 2019. Each year thereafter, it must be withdrawn by December 31. Note that those who take advantage of this deferral will be forced to “double up” in their second year. For example, those with birthdates in the range shown above can take their first RMD either in December of 2018 or by April 1 of 2019 – but in either case another one must be withdrawn no later than December of 2019. Those who plan to delay should be aware of the potential that the doubling-up in 2019 could nudge them into a higher tax bracket.