Required IRA Distributions by December 31
Generally, traditional IRA, traditional 401(k), 403(b) and other qualified plan owners must take an RMD the year they reach age 70½. For 2018, this rule applies to IRA owners born between July 1, 1947 and June 30, 1948.
Normally, RMDs must be taken by December 31. The RMD is calculated using the IRS Uniform Table (with an exception for couples with one spouse more than ten years younger than the other) and is about 3.77% of the account balance on the prior December 31st.
The typical RMD increases each year from about 3.77% at age 71 to 5.35% at age 80 and 8.77% at age 90.
IRA and other qualified plan owners born between July 1, 1947 and June 30, 1948 may take their initial RMD by December 31, 2018 or delay the distribution until April 1, 2019. However, all future RMDs must be taken by December 31 each year. Therefore, delaying the first RMD will result in two RMDs in 2019, which may lead to a significant increase in taxes. To save income tax, most of these IRA owners will take their first distribution in 2018 and the second distribution in 2019.
The RMD applies to traditional IRA and 401(k) plans, as well as to 403(b), 457(b) and Simplified Employee Pension (SEP) plans. ROTH IRAs do not have RMDs while the owner is living.
If you have multiple IRAs, you may calculate the RMD total and withdraw from any plan. If you have a workplace 401(k), 403(b) or 457(b), you must withdraw the RMD from that plan.
IRA trustees must report or offer to calculate your RMD amount. Usually, the IRA trustee will show the RMD amount in Box 12b on IRS Form 5498, IRA Contribution Information. Your 2018 RMD is listed on the 2017 Form 5498 and should have been sent to you in January of 2018.
Employees who are still working after age 70 and do not own more than 5% of the company may delay taking their RMDs until April 1 of the year after they retire.
Further information is available in Publication 590-B, Distributions from Individual Retirement Arrangements (IRAs).
IRS Guidance on Parking UBIT
In Notice 2018-99; 2018-52 IRB 1 (9 Dec 2018), the Service explained how to calculate the unrelated business income tax (UBIT) for qualified transportation fringes (QTFs).
The Tax Cuts and Jobs Act of 2017 modified Sec. 274 and Sec. 512 to generally disallow deductions for QTFs. Under Sec. 512(b)(7), nonprofits are subject to UBIT for the applicable QTF amounts.
The nonprofit community has vociferously opposed the new UBIT rules. Thousands of small nonprofits and places of worship have never filed IRS Form 990-T, Exempt Organization Business Income Tax Return. Many lack the accounting expertise to determine the QTF parking value and correctly complete Form 990-T.
Treasury Secretary Steven Mnuchin recognized the problem that smaller nonprofits will have with the new parking UBIT rules. He stated, “Treasury is sensitive to the concerns of the tax exempt community, and hopes this guidance can significantly limit the impact on nonprofit groups.”
In Notice 2018-100; 2018-52 IRB 1 (9 Dec 2018), the Service also granted estimated tax penalty relief. Because most nonprofits did not know how to calculate the parking UBIT, they did not make estimated tax payments. The relief applies only to Sec. 512(a)(7) UBIT. Nonprofits must file a timely Form 990-T to qualify for this relief.
The National Council of Nonprofits (NCN) and other associations have strongly opposed the Sec. 512(a)(7) rules creating UBIT for employee parking spaces. NCN Vice President of Public Policy David L. Thompson criticized Notice 2018-99. He explained that it “provides minimal instruction, relieves some organizations of penalties that result from the IRS’ own delay, and completely ignores the imposition of new taxes on transit benefits, benefits that are mandated for some employers in various cities.” Thompson and NCN continue to request repeal of Sec. 512(a)(7).
How to Calculate Parking UBIT
Many nonprofits will need to calculate 2018 UBIT for their qualified transportation fringes (QTFs). While some small nonprofits will calculate a Sec. 512(a)(7) amount under $1,000 and not be required to file Form 990-T, most midsized and large nonprofits will need to file and pay tax. Even small nonprofits will need to value their Sec. 512(a)(7) QTFs to determine if they are under the $1,000 UBIT exclusion amount.
Notice 2018-99 explains the basic calculation process.
- Employee Parking Spaces — Identify the number of parking spots reserved for employees. You have until March 31, 2019 to make changes to employee reserved spots. Those changes may apply retroactively to 2018. Multiply the percentage of employee reserved spots by your total parking expenses.
- Public Parking Spaces — Identify the spots that are used by the public more than 50% of the time. These are not included in UBIT.
- Visitor and Customer Spaces — Identify the spots used by visitors and customers. These also are not part of the UBIT calculation.
- Remaining Spaces — For all parking spaces not covered under the first three rules, use a reasonable method to calculate any other employee use. The IRS explains, “Methods to determine employee use of the remaining parking spots may include specifically identifying the number of employee spots based on actual or estimated usage. Actual or estimated usage may be based on the number of spots, the number of employees, the hours of use, or other measures.”
Notices 2018-99 and 2018-100 are intended to provide guidance for nonprofits to comply with the Sec. 512(a)(7) requirements until proposed and final regulations are published. Treasury Secretary Steven Mnuchin stated, “Treasury is offering tax exempt organizations a road map for navigating their responsibilities. The guidance issued today aims to provide flexibility while minimizing the burden on nonprofit groups that provide employee parking.”
Applicable Federal Rate of 3.6% for December — Rev. Rul. 2018-30; 2018-49 IRB 1 (16 November 2018)
The IRS has announced the Applicable Federal Rate (AFR) for December of 2018. The AFR under Section 7520 for the month of December is 3.6%. The rates for November of 3.6% or October of 3.4% also may be used. The highest AFR is beneficial for charitable deductions of remainder interests. The lowest AFR is best for lead trusts and life estate reserved agreements. With a gift annuity, if the annuitant desires greater tax-free payments the lowest AFR is preferable. During 2018, pooled income funds in existence less than three tax years must use a 1.4% deemed rate of return.