One of the quickest ways to attract the ire of the IRS is to make a mistake on your IRA distribution form. And when it comes to completing this document it’s super easy to make mistakes. Of all the questions I get on IRAs, this is the topic that causes the most confusion. Don’t get me wrong. If you arm yourself with a little understanding, you can avert these problems. But sadly, most of the bureaucrats who are charged with helping you fill out the IRA distribution form don’t get the training they need. That’s where this post comes in. Let’s explore the document together so that you can complete it correctly.
Every IRA custodian uses a slightly different form but they all share the same basic components. The first section (shown above) in this sample form asks for information about you and your IRA account. The only item that could trip you up is the question about the type of IRA. If you aren’t sure about the kind of IRA you are dealing with, ask the custodian. Easy enough. Let’s go on.
Section 2 asks you about the kind of distribution you want to take. Most of these questions are self-explanatory. But a few of these are tricky. Take care to complete this section accurately. If you have any question about which box you should check, talk to your CPA – not the person who gave you the form. This is important. Your distribution will be taxed according to how you mark these boxes. Don’t hesitate to ask for help from a qualified professional ever.
Section 3 just asks how you want to receive your payments. Are you interested in just a one-time payment or a series of distributions? Even if you indicate that you want to receive a series of payments, you should revisit this issue every year. Here’s why.
If you are over 70 ½ you must take a required minimum distribution (RMD). That RMD amount changes every year based on the balance at the end of the year and your age. So even if you set up equal payments to satisfy your RMD this year you’ll need to redo the IRA distribution form next year. Mark your calendar.
Section 4 is straight forward. But don’t ask your financial advisor or the clerk at the bank what your withholding should be. This is a question that only your tax professional can answer. Confer with her before you complete this document.
At this point, you can complete the IRA distribution form by telling the custodian how to transfer the money to you. You can have a check sent to you, to your bank, to another IRA custodian (in the case of a rollover) or you can have the money wired into your account. After you complete that information all that is left for you to do is to sign the form.
That’s all there is to filling out your IRA distribution form correctly. As a final tip, it’s always smart to keep a copy of every IRA distribution form you sign and turn in. Bottom line? Don’t be fooled by this simple looking form. Most of it is easy but there are a few landmines you need to avoid. Take it nice and easy and don’t forget to check with your CPA before signing anything.
Have you ever gotten tangled up because of a simple mistake on your IRA distribution form? What happened? Were you able to rectify the situation? How?