Question: I am over 70 ½ and am required to take my minimum required distribution (“MRD”). Is it generally better to take my MRD earlier or later in the year? Answer: There isn’t really a right or wrong answer, it all depends on your situation. Argument in favor of waiting: From an investment standpoint, the longer your money stays in the IRA, the more time the earnings are shielded from taxes. As an example, if you wait until the end of the year to take your MRD, you will get nearly a full year of additional tax deferral on the MRD. Any interest and dividends earned on the MRD between January 1 and when the distribution is taken will accumulate inside the IRA and will not be subject to income tax unless distributed. Argument in favor of taking distribution sooner: If you were to die before taking your MRD (not recommended of course), your beneficiaries are required to take what would have been the MRD before year end. The penalty for not taking the required distribution is 50% of the amount that should have been taken. It is usually possible for a beneficiary to set up an inherited IRA and withdraw the MRD, but it may take some time before the paperwork can be processed if death occurs very late in the year so there is a strong possibility that it may be missed. Comment: The reasons stated above are not likely to play out for most people. Most clients withdraw their MRDs earlier in the year generally because they need them. Since the penalty for not taking the withdrawal is particularly harsh, I usually prefer to err on the side of a client not missing the deadline and take the withdrawal earlier in the year than later If you have any questions or would like more information please contact Steve Shane at: firstname.lastname@example.org | 301.575.0313.
ABOUT STEVE SHANE
Steve Shane provides strategic counseling to clients in need of estate administration, charitable giving and business continuity planning while minimizing estate, gift, and generation-skipping transfer tax exposure. He offers legal guidance to clients on asset protection and the proper disposition of assets in accordance with the client’s objectives, while employing tax planning techniques such as the use of irrevocable trusts, life insurance planning, lifetime gifts and charitable trust. He is also experienced with drafting documents for business planning, the incorporation and application for exemption for Private Foundations and the administration of decedents’ estates. You can also connect with Offit Kurman via Facebook, Twitter, Google+, YouTube, and LinkedIn. WASHINGTON | BALTIMORE | FREDERICK | PHILADELPHIA | WILMINGTON | VIRGINIA