Are you over age 70 ½? If so, the IRS requires that you take a minimum amount out of your IRA each year. This article covers the rules surrounding required minimum distributions (RMDs) and we’ve included a few tips to help make the process easier for you.
The Technical Rules
The Internal Revenue Code (“IRC”) Section 401(a)(9) states that an RMD for your retirement account must be made every year in which you are 70 ½ or older. Failure to take the proper RMD each year subjects you to a penalty or excise tax.
There is an exception in the year in which you reach age 70 ½. You can take that RMD by April 1 of the year after you turn 70 ½. If your birthday is on or before June 30th, you will need to begin the RMD in that year or by April 1 of the following year.
The RMD changes each year based on two factors; your age and the value of your retirement account(s). The amount is calculated as follows:
The value (on December 31 of the prior year) of all IRAs (Numerator)
Your life expectancy as shown on the Uniform Lifetime Table III (Denominator)
The Uniform Lifetime Table III is found in IRS Publication 590. When using the table, use your age as of December 31 of the year in which you are taking the distribution. The value of your account is provided to you on your year-end statement from the IRA trustee. It is also reported to you by May 31 on IRS Form 5498. This “general” calculation applies to most situations and applies to all traditional IRAs, SEP IRAs and Simple IRAs.
There is NO required minimum distribution from a Roth IRA during the lifetime of the original owner.
For an Inherited IRA, the calculation method is as described above. However, different tables are used. In the case of an IRA inherited by your spouse who is more than 10 years younger than you, you will use the Joint Life and Last Survivor Expectancy Table (Table II in IRS Publication 590). If you are a non-spousal beneficiary of an Inherited IRA, the methodology is the same. However, in the year of death of the original IRA owner, his/ her life expectancy is used as the denominator. For subsequent years, your life expectancy is used to calculate the RMD. The Single Life Expectancy Table (Table I of Publication 590) is used for the beneficiary of an IRA.
The RMD is NOT eligible to be rolled over into another IRA. If you take more than the minimum amount required in any year you do NOT get credit for the excess amount in computing future RMDs. Of course, the distributed amount would affect you account balance and thus the amount of future RMDs.
Guidelines & Tips for Precious Metal IRA Required Minimum Distributions
The technical rules for IRA can be complex and failure to follow the rules may cost you additional money. Here are some recommendations and items to consider in handling the required distributions.
- Your trustee will typically use the precious metal spot price to value your Precious Metal IRA. Pay close attention to the December 31 value and report any discrepancy to the trustee as this could affect the amount of your RMD.
- You need to actually receive the required distribution by the end of the year. Do not wait until the last minute to request the sale of enough of your precious metals to cover the amount of the RMD. Additionally, do not attempt to sell a specific amount of gold to cover the RMD amount before you are ready to take the distribution. Prices could fluctuate, leaving you with inadequate cash to fund the distribution.
- Depending upon the rules of your Gold IRA trustee, you may be able to take an RMD “in kind.” This means that an amount of your precious metal holdings are shipped from the depository to your home or office.
- Generally, it is not wise to delay the first RMD until April 1 of the following year. This is because you will need to take your second RMD in the same year, increasing your taxable income for that year. Talk to your tax adviser about this issue.
- In the general calculation, you must add together the account value of ALL similar IRAs. This would include traditional IRAs, rollover IRAs, SEP IRAs and Simple IRAs. These accounts may be held by different trustees, custodians, banks and brokers. Most trustees help you determine the amount of RMD annually based upon the value of THEIR account. While this is a helpful service, we highly recommend that you calculate the aggregated RMD using the value of all of your accounts. You then need to take a distribution in this aggregated amount. However, it can be taken from one account, if so desired. You DO NOT need to take out the amount calculated by each trustee from their account. If, for example, you have a Bank IRA in a CD or money market account earning 1% and you also own a Gold IRA, you could take the entire RMD amount from the Bank IRA.
- No minimum distribution need be taken from a Roth IRA, so if you have a Roth IRA you may wish to use that type of account for your Gold IRA investment. You may also want to consider converting some of your traditional IRAs into a Roth IRA. This may have significant tax consequences, therefore we recommend you contact your tax adviser.
- The RMD for an Inherited IRA is calculated separately from the IRAs subject to the general rules. Therefore you do not count the value of those IRAs in the general calculation.
Equity Institutional, a well-known Precious Metal IRA custodian, features a IRA Distribution Calculator that you may find helpful when determining the amount of your upcoming RMD.
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The required minimum distribution is yet another complex aspect of retirement plans and our tax laws. For more information on Required Minimum Distributions or other topics relating to your Gold IRA, call Certified Gold Exchange today at (800) 300-0715 and let “America’s Trusted Source For Gold” help you set a course for personal financial independence and peace of mind. We have been assisting investors for over two decades and will be happy to help you.