If you are at least 70½ years old, you must take a taxable
distribution from your traditional IRA or employer-provided
retirement plan by the end of the year. If you miss the December 31
deadline, you'll be hit with a stiff penalty equal to half of the
amount you failed to withdraw.
12 Year-End Tax Moves to Make Now
But there's an exception if you're still on the job. Employees
who continue working past age 70½ are not subject to mandatory
distributions from their company retirement plans until they
retire. However, they still must take distributions from their
IRA owners who turned 70½ between July 1 and December 31, 2013,
can delay their first distribution until April 1, 2014. But if they
do, they have to take a second distribution by December 31, 2014,
and an annual distribution by December 31 every year after that. A
double payout could substantially boost your 2014 income -- and
your 2014 tax bill.
Mandatory distributions also apply to owners of inherited IRAs
and other retirement accounts. You can either take annual
distributions based on your own life expectancy or follow another
set of distribution rules that require you to empty an inherited
IRA by the end of the fifth year after the owner's death. Although
there are no required minimum distributions for Roth IRA owners --
regardless of age -- non-spouse beneficiaries who inherit a Roth
are subject to the mandatory distributions.
Of course, you can always withdraw more than the minimum amount
required by law, but you'll pay taxes at your ordinary rate on the
entire amount you withdraw from traditional IRAs and other
tax-deferred retirement accounts (except for any portion that
represents after-tax contributions). Withdrawals of earnings from
Roth IRAs are tax-free once the account has been opened five years
and you are at least 59½ years old. (Because Roth contributions are
made with after-tax dollars, you can withdraw your contributions at
any time, regardless of age).
If you're in a charitable mood, you can support your favorite
cause and trim your 2011 tax bill at the same time. Retirees who
are 70½ or older can direct up to $100,000 of their IRA
distribution directly to a charity and exclude the donated amount
from taxes. You can't double dip and claim a tax deduction for your
charitable contribution, but by excluding your donation from your
adjusted gross income, you'll lower your tax bill and possibly
qualify for other tax breaks tied to income limits.