Failure to take a required minimum distribution triggers a 50 percent excise tax on the amount that went undistributed. In many cases, account owners and advisors have successfully petitioned for this penalty to be waived after the required distribution.
2. The Impact Of Rollovers, Transfers And QLACs
If a distribution is required for 2019, that distribution is calculated using the owner’s IRA balances as of Dec. 31, 2018, unless that account has an outstanding rollover on Dec. 31, 2018. Outstanding rollovers require the IRA balance to be adjusted. The same rules apply for transfers from one IRA to another.
“All those clients who hate taking RMDs, if they could, they would take a distribution in December, clean out their IRA, and then roll it over in January, which would leave the Dec. 31 balance as zero,” said Brenner. “The IRS is not going to let that happen.”
Assets in QLACs, or qualified longevity annuity contracts, are excluded from the RMD calculation. However, excess QLAC payments are added back for RMD calculations.
3. Aggregating RMDs
Many–but not all–RMDs can be aggregated. Owners of multiple traditional IRA and SEP IRAs can calculate RMDs from each account, add them together and take the distribution from any one or several IRAs. But spouses cannot aggregate their accounts together for the purpose of taking an RMD.
RMDs can be aggregated from IRAs that have been inherited from the same person, however, account owners cannot aggregate RMDs from accounts that they founded and own and those that they have inherited. RMDs from employer plans must come from each plan individually. Roth and traditional IRA RMDs must be aggregated separately. RMD calculated from one type of retirement account cannot be taken from a different type of account.
4. The Rules After An IRA Owner's Death
When an IRA owner dies before his or her required beginning date with living individuals named as beneficiaries, the entire inherited IRA must be withdrawn no later than the end of the year following the original IRA owner’s death.