What are Required Minimum Distributions?

If you have an IRA, 401(k), or other type of retirement account, you cannot keep retirement funds in your account indefinitely. You generally have to start taking withdrawals when you reach age 70½, even if you don’t need the money. Required Minimum Distributions (RMDs) are the minimum amounts that a retirement plan account owner must withdraw annually.

The purpose of the RMD rules is to ensure that people do not defer taxation indefinitely. Your withdrawals will be included in your taxable income, except portions that were taxed before (your basis) or that can be received tax-free (such as qualified distributions from designated Roth accounts).

The amount of the RMD for any year is the account balance as of the end of the preceding calendar year divided by a distribution period from the IRS’s “Uniform Lifetime Table.” A separate table is used if the sole beneficiary is the owner’s spouse who is ten or more years younger than the owner. You can withdraw more than the minimum required amount, but not less.

There are consequences for failure to take RMDs. If you do not take any distributions, or if the distributions are not large enough, you may have to pay a 50% excise tax on the amount not distributed as required.

IRS rules prohibit transferring your RMD into another tax-advantaged retirement account. But you can avoid further RMDs by converting the remaining portion of your retirement account to a Roth IRA.

Roth IRAs are not subject to RMDs (until after the death of the owner) because the contributions to the Roth IRA were already taxed. However, a Roth 401(k) account is subject to the same RMD requirements as a pre-tax 401(k), even though no taxes are due on the withdrawal. You can avoid RMDs by rolling your Roth 401(k) into a Roth IRA.

The Filing Status Test

Your marital status on the last day of the year determines your tax filing status for the entire year. For example, if you get married on December 31st, you are considered to be married for the entire year (even though you were only married for one day out of the year), and you can select “married filing jointly” as your filing status on that year’s tax return. Even common-law marriages count if you live in a state that allows them.

On the other hand, if you get divorced on the last day of the year, you are considered to be single for the entire year. However, you may qualify as head of household if you have a child or other dependent who lived with you and you paid more than half the cost of supporting the household.

Tips to Help Taxpayers Recognize Tax Scams

New versions of well-known tax-related scams appear every year…and 2019 is no different. No matter what time of year, taxpayers should be on the lookout for scams. Here are some things taxpayers should remember to help them spot scams and avoid becoming a victim.

Phone scams ● The IRS does not leave pre-recorded, urgent or threatening messages. ● In many versions of phone scams, potential victims are told if they do not call back, a warrant will be issued for their arrest. Other verbal threats include law-enforcement agency intervention, deportation and revocation of licenses. ● Criminals can fake or “spoof” caller ID numbers to appear to be anywhere in the country. Scammers can even spoof an IRS office phone number, or the numbers of various local, state, federal or tribal government agencies. ● If a taxpayer receives a phone scam, they should hang up immediately, contact the Treasury Inspector General for Tax Administration to report the call, and report the call to the Federal Trade Commission.

Email phishing scams ● The IRS does not initiate contact with taxpayers by email to request personal or financial information. ● The IRS initiates most contacts through regular mail delivered by the United States Postal Service. ● If a taxpayer receives an unsolicited email that appears to be a scam, they should report it to the IRS. They can forward the email message to phishing@irs.gov. They should not open any attachments, click on any links, reply to the sender, or take any other actions that could put them at risk.

Telltale signs of a scam: Taxpayers should remember that the IRS generally first mails a bill to a taxpayer who owes taxes. ● The IRS will never call to demand immediate payment using a specific payment method such as a prepaid debit card, gift card or wire transfer. The IRS does not use these methods for tax payments. ● The IRS will never ask for checks to third parties. The IRS has specific instructions on how to pay taxes. All tax payments should only be made payable to the U.S. Treasury. ● The IRS will never threaten to immediately bring in local police or other law-enforcement groups to have the taxpayer arrested for not paying. ● The IRS will never demand that taxes be paid without giving the taxpayer the opportunity to question or appeal the amount owed.