Taxes on Distributions

Sep 19, 2019

When I take out a distribution, when are the taxes due?

Here is an example when income tax is due on a Traditional IRA or 401(k) distribution: 

For example, John took a Required Minimum Distribution from his Traditional IRA in July 2019. However, John wanted to delay the cost of the income tax so he placed the check in a drawer and left it in there until January 2020.

When is John’s income tax due? 

  • On his 2019 return?
  • On his 2020 return? 

This may sound like a small matter, but certainly, it is not. John is not a lone wolf in trying to beat the system.  In other words, there are so many people trying the same ploy, the IRS posted a ruling on just this matter (IRC 2019-19).

There is no question the taxable event must be included on John’s 2019 return.

John could have held the check in that drawer for years or never cashed the check at all. The answer is still the same; the income is realized in the year of the distribution.

December 31st:

Left unanswered in this IRS ruling was the matter where a person requested a distribution on December 31. The check was issued on January 2.  Even though it is not clear in this ruling, there is enough precedent to say that the individual did not have “constructive receipt” till January 2, thus, that is the year the taxable event occurred.

To sum up, when you receive a distribution check you may as well cash it; you’re going to be taxed anyway. 


For information about the Self Directed IRA or Solo 401k, call IRA Club at 312-795-0988

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