When do you turn 70 1/2?
First things first, what genius in Congress decided to use age 70 1/2 instead of 70 or 71? When are you 70 1/2? The IRS says you turn 70 1/2 on “the date six calendar months after the 70th anniversary of the employee’s birth.” (Regulation 1.401(a)(9)-2, A-3) An example in the regulation says that if your birth date is June 30th, then you turn 70 1/2 on December 30th (shouldn’t that be December 31st, well it is not). On the other hand, if your birth date is July 1st, then you turn 70 1/2 on January 1 of the next year.
Why should you care?
If you turned 70 1/2 years old during 2014, you are required to take a minimum distribution by April 1, 2015 or face a 50% penalty. That is 50% of the amount you should have withdrawn but failed to. That is a pretty steep penalty. IRS is fairly liberal on waiving the penalty the first time but after that they are quite strict. Even though IRS is liberal in forgiving the penalty, there is no guarantee and an excuse like “I did not want to take my required distribution” will not work. NC does not have an equivalent penalty.
Distribution deadline
For the year you turn age 70 1/2 you can take your minimum required distribution (MRD, aka RMD for required minimum distribution) any time after turning 70 1/2 through April 1st of the following year. Please note that an IRA distribution the year you turn 70 1/2 does not count as an MRD if it is before you reach 70 1/2. Why April 1st? Perhaps Congress thought it would be funny to penalize people for missing something on April Fool’s Day. I will leave it to you to decide the why.
What is important is the date. A lot of people get confused and equate the deadline with the individual filing deadline of April 15th. Sorry, take your post 70 1/2 MRD after April 1st of the following year and on or before April 15th and you owe the 50% penalty. Determining your MRD is beyond the scope of this post as it depends on several factors. Your IRA custodian may be able to help but remember, they will probably disavow any responsibility if they get it wrong.
Note: The MRD rules do not apply to Roth IRAs during the original owner’s life. The MRD rules do apply to people inheriting Roth IRAs.
Conclusion
If you turned 70 1/2 in 2014 take your MRD now! It takes time for your IRA custodian to process the paper work so do not wait until the last-minute. Also, please do not count on IRS being forgiving.