If you are the proud owner of an Individual Retirement Account (IRA) and at least age 70-1/2, then the end of the year is an important deadline that must be at the top of mind.
By December 31, all IRA account holders must take a Required Minimum Distribution (RMD) and report it to the IRS on their income taxes due the following April.
RMDs are not the same for everyone; specifically, the RMD is based on a financial formula that considers the value of the retirement account at the end of the previous year. You may want to consult your account representative to discuss your exact amount, or we can help you with the formulas as part of our retirement planning services.
What happens if I miss the RMD deadline?
If you fail to withdraw the minimum distribution from your account before the end of the year, then the IRS will charge you a hefty penalty – a whopping 50 percent.
That means if your Required Minimum Distribution is $5,000 and you forget to take it from your IRA, then you have the privilege of writing a $2,500 check to the IRS.
For obvious reasons, this is not something we recommend to our clients – but it does happen. So, when it does, we adjust the financial plan around it.
What should I do with the money I withdraw from the IRA?
When you take the money from your retirement account, you don’t necessarily have to deposit it in your personal bank account – unless you want to do so.
One possible option is to reinvest the RMD in a non-IRA account, so that it can keep the money growing. There may be other, more suitable options that make sense for your financial situation; however, it is always best to talk with an advisor who specializes in retirement and financial planning.
Whatever your pursuit, the most important thing to remember is that you must take the RMD by the end of the year – lest you risk forfeiting a greater portion of your investment.