Did you know that you could be charged a federal income tax penalty on money you don’t withdraw from your retirement accounts?
Paying taxes is inevitable, but following regulatory rules and managing your retirement accounts can help you avoid IRS penalties and take advantage of financial opportunities.
A variety of tasks must be done by year-end in order to comply with IRS rules. Taking your required minimum distribution is one of them.
Required Minimum Distributions
Once you reach age 70½, you must begin taking minimum distributions from traditional IRAs and most employer-sponsored retirement plans. Generally, these distributions must be taken by December 31 of each year.
You can, however, delay your first required minimum distribution to April 1 of the year following the year in which you turn 70½ (keep in mind that you would also have to take a second distribution by December 31 with this option). If you’re still employed, you may be able to delay minimum distributions from your current employer’s plan until after you retire.
If you fail to take the required minimum distribution, you could be charged a 50 percent excise tax on the amount that should have been withdrawn.
Distributions from traditional IRAs and most retirement plans are taxed as ordinary income and, if taken prior to reaching age 59½, may be subject to an additional 10 percent federal income tax penalty.
Always remember, careful planning can help you avoid penalties