IRA Distributions and IRS Penalties

Long Island attorney for estate and financial planningIf you have an Individual Retirement Account (IRA), once you reach the age of 70 ½ years, you must start making distributions out of the account each and every year. Should you fail to make these annual distributions, significant fines are triggered. These fines can equal up to 50% of the money which was supposed to be distributed in that year from the account. Individuals who have IRAs usually wait until the end of the year to make their minimum distributions. They take this action to maximize the interest rate returned on their funds. It is estimated that three-quarters of a million Americans hold IRAs which require distributions each year. It is estimated one-quarter of a million of these IRA holders miss the deadline for taking minimum distributions. The distributions amount to approximately $350 million dollars which triggers potential fines and penalties of up to $175 million dollars.

Bank Notification of IRA Distributions

The IRS has recently been cracking down on IRA holders who fail to make their minimum distributions. It is up to the financial institution that holds the IRA investments to notify you each and every year of the amount of required distributions to be made by the end of that year. The first year the minimum distributions are required to be made, you have until April 1st to make those distributions. Thereafter, in subsequent years, you have until December 31st to make distributions.

Death of the IRA Holder

In the event the individual who owned the IRA dies, the beneficiary of the IRA must make the deceased IRA holder’s distributions in the year of that individual’s death. Beneficiaries who are not the spouse of the IRA holder must continue making distributions in the year after the death of the IRA owner. Unfortunately, financial institutions do not provide these individuals with notice of the minimum distributions.

IRA distributions can be confusing. Seniors should make every effort to meet with their accountant or their attorney to determine what amount they need to distribute each and every year.

estate planning attorney on Long IslandElliot S. Schlissel is an elder law attorney. He drafts wills and trusts. He probates wills and represents beneficiaries of estates.