Don't Forget to Take Your IRA Required Distribution

Before you go, we thought you'd like these...
Before you go close icon
Don't Forget to Take Your IRA Required Distribution
Getty Images
By Kimberly Lankford

I turned 70½ in June of this year. Do I have to take the required minimum distribution from my IRAs by Dec. 31?

For you and anyone else who turned 70½ this year, you can wait until April 1, 2014, to take the first required distribution, but you'll have to take your second distribution by Dec. 31 of the same year. Anyone older than that will need to act quickly to take your required minimum distribution from your IRAs before the Dec. 31 deadline.

To calculate your required distributions, take the value of each of your traditional IRAs as of the end of 2012 (Roth IRAs aren't subject to required distributions), then divide each one by the IRS life expectancy figure based on your age. See Calculating Your Required Minimum Distributions for details; your IRA administrator can also help.

You need to calculate the required distribution from each IRA separately, but you don't need to take that much from each account. You just need to add up how much you must withdraw from all of your accounts, then take the total amount from one or more IRAs. (Required distributions from 401(k)s, on the other hand, must be taken separately from each account.) But be very careful with your calculations -- the IRS has been cracking down on retirees who don't take their required distributions or don't take the correct amount.

Ted Sarenski, a CPA and financial planner in Syracuse, N.Y., recommends looking at all of your IRA accounts before deciding which ones to tap for your withdrawal. %VIRTUAL-article-sponsoredlinks%"If the investments in one account aren't doing as well as the others, you may want to take the withdrawal from that account," he says. Choosing one account for the withdrawals won't affect your tax liability -- you'll owe the same amount no matter which account you tap -- but taking the full amount of your required distributions from one account can help you avoid selling investments in other accounts that you'd like to keep.

Some IRA administrators automatically send you a check for your required distribution from each account before the Dec. 31 deadline. If you plan to take all the money from just one or two accounts, contact your other IRA administrators right away and tell them not to send you the check this year. (Many IRA administrators don't send an RMD check automatically unless you've signed up for an automatic withdrawal program. Vanguard, for example, automatically distributes RMDs if you sign up for its RMD Calculate-and-Distribute Service and choose a date -- or frequency -- for your distributions.)

Contact your IRA administrator as soon as possible. You technically have until the end of business on Dec. 31 to make the withdrawal, but it's a good idea to take action soon, especially if you need to sell investments and wait for the trades to settle before you have enough cash in the account for the withdrawal. TD Ameritrade, for example, recommends contacting the company by Dec. 20 to guarantee distribution by Dec. 31.

Another option for people over age 70½ is to make a tax-free transfer of up to $100,000 from your IRA to a charity. The money transferred counts as your required minimum distribution but is not included in your adjusted gross income (you cannot take a charitable deduction for the money, too). This has been an option for the past several years, but Congress usually doesn't renew the law until the very last minute. Last January, Congress extended the tax-free charitable transfer law through 2013. It helps to set aside even more time for the request to be processed and the charity to cash the check -- Fidelity recommends filling out the forms by Dec. 15.

The money must be transferred directly from your IRA to the charity; you won't qualify for this tax-free transfer if you withdraw the money yourself then give it to the charity (in that case, you can deduct the charitable contribution if you itemize, but the withdrawal will be added to your adjusted gross income). Fidelity, for example, has an IRA one-time withdrawal form with which you can have a check made out to the charity from your IRA, or you can send the charity a check from your IRA if you have check-writing privileges established for the account. See Who Can Transfer IRA Funds to Charity? for details.

For more information about required minimum distributions, see our RMD special report.

More from Kiplinger:

Ways Retirees are Making Money
See Gallery
Don't Forget to Take Your IRA Required Distribution
Walking dogs is a great way to stay fit, and many working individuals and families simply don't have time to give their pets the exercise they need. Dog walkers can charge $15 to $25 an hour, per dog.
Websites like have exploded the market for handmade goods of all sorts in the past few years. While it takes a lot of work to make a full-time living selling crafts, many retirees, stay-at-home moms and 9-to-5 workers turn their hobby into part-time income by selling crafts online. Whether you love to knit scarves, hand-quilt throws or throw pottery, there's an online market for your craft.
Retired teachers aren't the only ones with potential tutoring skills. If you're good in math, reading or other basic skills, tutoring could be a lucrative option. Advertise your independent tutoring services through word-of-mouth or Craigslist, or join an online tutor-finding service like Wyzant. Another option is to sign up with a local non-profit that pays tutors for their services.
If you love shopping for antiques, collectibles or other unique finds, consider shopping for them and then reselling them. Cruise estate and garage sales to find great deals, which you can turn around and sell on eBay or Craigslist at a profit.
If you're good with a wrench and know your way around crown molding, consider advertising your handyman services. Your state may require that you become licensed, especially for certain types of work, so check with your state's contractor licensing board to get started.
Engineers, scientists, management experts and others can all form careers as consultants. According to the Bureau of Labor Statistics, consultants in management make a median annual wage of $75,250, but you can also consult part-time for a high hourly fee. Turning your one-time profession into consulting jobs may be easier and more lucrative than you'd think.
If you're still healthy and mobile yourself, consider spending time with older folks who need help with everyday activities. Elder care can involve basics like running errands or giving a shut-in some regular company, or more involved activities like basic hygiene and nursing. Either way, this can be a fulfilling option.
On the other end of the spectrum, you could spend time caring for kids. As long as you've got the energy to keep up with little ones, you could offer all day or after school care for local children or even your own grandchildren. Just be sure to get and stay up to date on the latest nutrition and safety recommendations.
Maybe you don't really want to have a job, but have extra space in your home that you don't need. Consider taking on a renter in your spare room or basement. If you're traveling a lot during retirement, you could also rent your whole home out for short-term vacations.
Starting a blog is a great way to share your passion with the world, while making some extra money. There are plenty of online resources to teach you how to start, run and monetize a blog on just about any topic that interests you.
If you'd like to work sometimes and not others, consider signing up for temporary work. As employers seek to cut costs, many are hiring temporary workers to fill a myriad of roles. Temp jobs can let you experience lots of different types of work during retirement.
If you love growing fruit and vegetables, consider selling your extra produce at farmer's markets. Heirloom produce is in high demand right now. Another option is to grow perennials that need to be split each year. Each time you split your plants, you can sell the extras to aspiring gardeners.
If you're a local history buff or love the arts, consider finding opportunities to be a local tour guide or museum guide. You could even start your own local tour business, if your area is frequented by travelers.
Upcycled furniture is all the rage today, but some people simply don't have the time to spray paint and decoupage old pieces to give them new life. Retirees could upgrade old pieces of furniture and sell them online or locally, or offer their services for custom furniture upgrades.
Read Full Story

Sign up for Finance Report by AOL and get everything from business news to personal finance tips delivered directly to your inbox daily!

Subscribe to our other newsletters

Emails may offer personalized content or ads. Learn more. You may unsubscribe any time.

People are Reading