It’s time to make plans for your IRA distribution if you are over age 70 ½ or will reach that age during 2012. The withdrawal is referred to as the required minimum distribution (RMD). Retirement plan accounts such as 401(k) plans, 403(b) plans, 457(b) plans and IRA owners are responsible for calculating the correct amount of RMDs each year.
- The amount is based on the prior December 31st account balance divided by a life expectancy factor that is published by the IRS in Publication 590 [pdf].
- There is a stiff penalty for failing to take the correct amount before year end.
- You can take your RMD at any time during the year, space it out evenly each month or even wait until the last day of December to make the withdrawal. Those who are charitable may indeed want to wait until the end of the year to take their RMD. The ability to make a Qualified IRA Charitable Distribution ended on December 31, 2011. This provision allowed the taxpayer to give their RMD (up to $100,000) directly to a charity without having to first record it as income. The rule was very popular with both Democrats and Republicans and is expected to be reinstated at some point during the year. AMT Relief is another popular provision that is expected to be passed before the end of the year.
Given that 2012 is a presidential election year, it is unlikely that Congress will pass any changes to the tax code until after November. Anyone with an RMD in 2012 that plans to give any part to charity should wait to see if Congress renews this provision. It may only be a temporary extension until the new Congress meets in 2013 to take on permanent tax reform. There are definite benefits to giving directly from your IRA. Hopefully Congress will come through with a year-end gift for IRA owners.