Tax Tip of the Week
For the week of November 22, 2004

Don’t miss the deadline for IRA distributions

If you’re over age 70½, you could be facing an important tax deadline. You have until December 31st to take this year’s required minimum distribution from your traditional IRA accounts. The rule covers all types of IRAs except Roth IRAs. It’s important to meet this deadline because if you forget, the IRS can impose a 50% penalty on the amount you should have withdrawn.

There’s good news and bad news if this was the year you reached age 70½. The good news is that you have a later deadline – until April 1, 2005. The bad news is that if you wait until then, you’ll have to take two withdrawals in 2005. That’s because you’ll have to take both your 2004 withdrawal and your regular withdrawal for 2005 before December 31, 2005. And because most or all of the withdrawals are usually taxable, you could have an extra tax bite next year.

Each year after you reach age 70½, you must withdraw a certain minimum amount from your non-Roth IRAs. You calculate the amount by taking your IRA balances at the end of the prior year and dividing by your life expectancy. The IRS publishes tables showing life expectancy at different ages. There are some special rules that may apply if your spouse is more than 10 years younger than you.

Your other retirement plans, such as 401(k) plans, also have required minimum distributions, unless you’re still working. You should check all your retirement plans to make sure you’re complying with the rules.

If you need additional information or help calculating your distribution amount or planning the timing, we’ll be happy to assist you. Give us a call.

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