Investors owning an Individual Retirement Annuity or other qualified retirement savings plan must start taking Requirement Minimum Distributions (RMDs) from the account starting the year the investor turns 70 1/2 years old. These distributions must be taken out, otherwise the investor is faced with a 50 percent tax penalty on the amount that should have been distributed. The amount of the RMD is reported by a 1099-R sent to the investor and the IRS.
Obtain the 1099-R sent by the IRA custodian. Box 1 represents the gross distribution, Box 2 is the taxable portion, and Box 4 represents any federal tax withholding already applied to the distribution, if any. Some non-deductible IRAs will have a difference in the gross amount and taxable amount if the contribution was after-tax money.
Fill out IRS Form Appendix A to determine the appropriate RMD amount. Follow the instructions on the form to ensure that your IRA custodian withdrew the correct amount.
Report non-taxable distributions on Form 8606 with your Form 1040 or 1040A.
Record the gross distribution (Box 1) on Line 15a of the 1040. The taxable portion (Box 2) is recorded on Line 15b.
With more than 15 years of professional writing experience, Kimberlee finds it fun to take technical mumbo-jumbo and make it fun! Her first career was in financial services and insurance.