Owners of traditional IRA, SEP, and Simple IRA accounts must start taking RMDs as soon as the account holder is 72 years old (73) if you turn 72 after December. Retirement account holders can defer taking their RMDs until the year they retire, unless they own 5% of the company sponsoring the plan. Holders of retirement accounts with traditional plans such as IRA, SEP IRA, SIMPLE IRA, 401 (k), and 457 (b) must start withdrawing minimum payments from the account upon reaching 72 years of age and make these minimum annual distributions as long as they maintain the account. Provided that you are 59½ years of age or older and have owned at least one Roth IRA for at least five years, the money added to the Roth IRA can be tapped tax-free
.
You must fill out Form 8606 and attach it to your tax return if you receive a distribution from a traditional IRA and have ever made non-deductible contributions or transferred amounts to one of your traditional IRAs after tax. If you inherit a traditional IRA from someone other than your deceased spouse, you can’t treat the inherited IRA as your own. Regardless of your age, you may be able to set up and make non-deductible contributions to an individual retirement plan called a Roth IRA. If you inherit a traditional IRA from someone who had a basis in the IRA due to non-deductible contributions, that basis remains with the IRA
.
Your account or pension won’t lose their IRA treatment if your employer or the workers’ association with whom you have your traditional IRA makes a prohibited transaction. The RMD rules also apply to traditional IRAs and IRA-based plans, such as SEPs, SARSEPs, and SIMPLE IRAs. However, these separate accounts or stocks will not be combined for the minimum required distribution purposes following the death of the IRA owner if the separate accounts or shares are set up by the end of the year following the year the IRA owner died. The tax benefits of using traditional IRAs for retirement savings can be offset by additional taxes and penalties if you don’t comply with the rules
.
The 10-year rule requires IRA beneficiaries who do not receive life expectancy payments to withdraw the entire balance of the IRA by December 31 of the year that marks the 10th anniversary of the owner’s death. Use Table III if you’re the IRA owner and your spouse isn’t both the only designated beneficiary of your IRA and is more than 10 years younger than you. Distributions from another Roth IRA cannot replace these distributions unless the other Roth IRA was inherited by the same deceased person. But if you lower your traditional IRA balance, future RMDs are reduced, and the money in the Roth IRA can stay there as long as
you want.
For example, while traditional IRA distributions are taken into account when calculating the taxation of Social Security benefits and Medicare premium supplements for high-income taxpayers, this does not apply to Roth IRA distributions. A recognized IRA may be a Roth IRA, but neither a SEP IRA nor a SIMPLE IRA can be referred to as a Roth IRA.
