Boca Raton residents who turned 70½ in 2014 must meet the IRS Required Minimum Distribution (RMD) deadline by the April 1st or face a substantial penalty tax. The Required Minimum Distributions imposed by the IRS can be explained by the favorable tax treatment given to qualified retirement plans that “qualify” for a tax deduction when the contributions are made and provides tax deferral for all of the gains in the account until withdrawn. Qualified retirement plans that are subject RMD requirements include:
– Individual Retirement Account (except Roth IRAs);
– 401(k);
– 403(b);and
– 457 Deferred Compensation Plans.
Public policy dictates that tax relief is given to investments that provide for individual taxpayer retirements. However, for this favorable tax treatment the IRS expects the retirement benefit to paid over an investor’s lifetime beginning no later than age 70½. The RMD calculations are based on IRS life expectancy tables which must be withdrawn by certain dates or face a consumptive penalty tax.
For instance, if an individual fails to withdraw the full amount of the RMD, any shortfall is taxed at 50%. If investors fail to withdraw the RMD by the applicable deadline, the entire required amount not withdrawn is subject to a 50% tax rate. For Boca Raton investors who turned 70½ in 2014, the deadline for making the RMD is April 15th. All subsequent RMDs withdrawals must be made by December 31st, or face the penalty. Investors must determine the RMD amount for the first year using the life expectancy, based on their birthday in 2014 and their account balance on December 31, 2013.
It is important to understand these life expectancy tables because the economic, tax and actuarial concepts apply to other IRS tables which can help determine what financial, retirement and estate planning techniques should used to manage and maximize your wealth for you and your family. True North Financial Advisors provides personalized financial planning and investment management services through Certified Financial Planner® professionals to individual, trusts and closely-held business in Boca Raton and throughout Palm Beach County
