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Every year more Baby boomers move toward age 70 ½ and their first required distributions from their retirement accounts. For those boomers born between July 1, 1946 and June 30, 1947, you turned 70 ½ in 2017. You now need to take your first required minimum distribution (RMD) from your IRA accounts. Here are the basics of that first distribution.

The date of the first RMD.

Generally, you need to take your RMDs by December 31st of the year for which it is due. But, for your first RMD you can defer the distribution to April 1st of the following year. What that means for you is that you can delay your first RMD to April 1, 2018. But should you? Let’s say you take your first RMD on March 15, 2018. It is still your 2017 RMD. Your 2018 RMD must be taken by the end of the year. So you end up with two RMDs taken in 2018. For most taxpayers, that is not a good thing.

What age do you use?

You always use the age you are on the last day of the year. For those of you born in 1946, you will use age 71 because that is how old you will be on December 31, 2017. For those of you born in 1947, you will use age 70 for the same reason.

You will look up your age on the Uniform Lifetime Table to find your factor for the year. If your spouse is more than 10 years younger than you, you will look up your joint ages on the Joint Life Expectancy Table to find your factor. Life expectancy tables can be found on our website and in IRS Publication 590-B.

How to calculate your RMD.

The last piece of information you need is your prior year-end account balance. You will divide the factor from the previous step into the account balance from this step to determine your 2017 RMD. You will repeat this process for each year going forward.

Take your RMD.

The last step is to actually take your RMD. It is now November and you only have two months left in 2017 to take the RMD, so don’t wait too long to do it. RMDs are taxed in the year they are withdrawn. If you miss the December 31st deadline and take your RMD in 2018, it will be taxable for 2018. But, since this is your first RMD and the deadline is not until April1, 2018, there will be no penalty.

The penalty for missing an RMD.

There is a penalty when you miss an RMD distribution. It is almost the harshest penalty in the tax code. Only disqualification of your account could be worse. The penalty for a missed distribution is 50% of the amount not taken. Let’s say that you miss $10,000 of your RMD. The penalty is $5,000 (50% of $10,000), and you have to take out the $10,000 and pay income tax on it. That is a pretty strong incentive to make sure you take your RMDs in full, and on time.

There is some good news here. The IRS has the authority to waive the penalty for good cause. The penalty is reported on Form 5329 which has a signature line and is considered a stand-alone return. You must file this form, making sure you have a zero at the end for the tax amount due, and use the code RC on the line where you would show the amount of the penalty. Then you include a brief explanation of why you missed the RMD. The IRS will usually waive the penalty. Because this is a stand-alone return, it is not a good idea to not file the form. When it is not filed then the statute of limitations never starts to run and interest and penalties continue to accumulate. So don’t make a bad thing worse by not filing it.

Welcome to the world of RMDs!