Tricks and Traps Involving Minimum Distributions

Both pensions and IRAs are subject to required minimum distribution (RMD) rules. These rules are complex and constantly changing, and the complexity presents certain planning opportunities but also some traps for the unwary. Set forth below is a general primer on the RMD rules, as we regularly see issues (i.e., failures) relating to RMDs, which can have unexpected – and adverse – tax consequences.

General Rule

In most cases, individuals must commence required minimum distributions each year – commencing in the year in which they attain age 70?. In the first year in which the individual attains age 70?, the initial distribution may be delayed until April 1 of the year following attainment of age 70? (the “required beginning date” or “RBD”). This rule applies to all traditional IRA owners and participants in company sponsored retirement plans who own more than 5 percent of the equity of the employer. Roth IRA owners are not required to take distributions during their lifetimes. 

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Harvey M. Katz - Fox Rothschild