Originally Posted by Wingryder
#1;Does he now have to start filing a return every year?
#2;And if not how does he notify the IRS he has complied with their rules??
1;I guess he needs to file his return as long as he has Federal(state) taxes withheld from his pension(a pension falls under traditional IRA rules) for this tax year and wishes to get a refund back or due to higher AGI, he has amount on line 61 that is larger than the amount on line 72. For IRA,the contributions grow tax free, but at age 70 1/2, the IRS wants account owners to begin taking the RMD out of those accounts with income tax paid on the withdrawals.A traditional IRA is, however, subject to required minimum distributions. Your friend has to start taking these distributions in the year he turns 70½, though he can wait until April 1 of the year after he turns 70½. Social Security benefits can become taxable depending on your marital status and modified adjusted gross income. MAGI includes taxable pensions, wages, interest, dividends, any tax-exempt interest income plus half of his Social Security benefits. As long as yur friend is single, then, UNLESS the amount of his MAGI exceeds $25K for 2013, he doesn’t need to pay tax on his soc sec benefits. He needs to report his IRA distributions on line 15b of 1040. He needs to look at boxes 4 and 12 or 15 of his Form 1099-R statement. As long as he has any amounts in these boxes, then he needs to include these amounts for his tax withheld. The amount in box 4 is added to his other withholding on Form 1040 Line 62. The amount in box 12/15 is added to his state/local tax withholding on your state tax form. So as long as the amount on line 62and 72 on 1040 is larger than the amount on line 61, then he needs to file his return for tax refund.
NOTE: his IRA minimum required distribution must be included as part of his taxable income when he files his federal income taxes. His financial institution sends him a Form 1099-R at the end of the year that shows the taxable portion of the distribution. When he files his income taxes, he must report the amount as a taxable IRA distribution. Since the IRS uses a progressive income tax rate, the tax rate on his minimum distribution will vary: the higher his total income, the higher the tax rate.
State Income Taxes
He also will owe state income taxes on his IRA minimum required distribution if his state has an income tax. If he lives in a state without an income tax, his distribution will be tax-free. Many states also use a progressive tax rate structure like the federal government, which means that the higher his total income, the higher his state income tax rate will be on his IRA minimum distribution
#2; His custodian will calculate the appropriate amount for his account and send his distribution on a date he specifies each year. Although the IRA custodian or retirement plan administrator may calculate the RMD, the IRA or retirement plan account owner is ultimately responsible for calculating the amount of the RMD.