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Common Mistakes Made

The following is a sampling of the types of mistakes that people commonly make when attempting to meet the requirements set forth for distributions from qualified plans:

  • The spousal exception allows a plan participant whose spouse is more than 10 years younger to use a different life expectancy table providing more favorable RMDs. However, if the marriage is a second marriage for the plan participant, the spousal exception is not available.

  • Many people confuse the RMD start date of April 1 of the year following the year they turn 70.5 with tax day, April 15. This is a cost error of 50 percent of the RMD.

  • If you choose to wait until April of the year following the year in which you turn 70.5 to begin RMDs, you will actually have to take two distributions that year. The ability to defer the first distribution is a one-time, one-year-only special and only for 90 days from January 1 to April 1 of the year you begin distributions.

  • You are not allowed to roll over an RMD in the year it is to be taken. As an example, if you were to move your money from one custodian to another custodian in a year when an RMD is due, you must withhold the RMD from the transfer. If you don't, you've just made an excess contribution to your IRA and you're subject to a 6 percent penalty tax.

  • Let's say that you have three IRAs and a 401(k) from which you have to take RMDs. Many people think that you aggregate all plan assets and take the RMD from one of the sources. The regulations say that you can aggregate only your IRAs and take just the money from one IRA, but you cannot aggregate the 401(k) amount with the IRA.


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