Attention retirees: The deadline to take your required minimum distribution is fast approaching. According to Fidelity, 67 percent of IRA holders that fall within the requirement have yet to take their distribution. If you or a loved one are 70 ½ years or older, read our quick fact sheet and tips to ensure you meet the requirement and do not get penalized.
What is a required minimum distribution?
Required by the IRS, this is the minimum amount you must withdraw from your IRA account each year when you reach the age of 70 ½.
Why is this in place?
The IRS dictates this rule in an effort to prevent retirees from deferring taxes for life. Sadly, you cannot avoid taxes.
When is the deadline?
For those who just reached the age of 70 ½, you must make your first required minimum distribution by April 1 of the following calendar year. Each subsequent deadline is on the 31st of December every year.
What happens if I miss the deadline?
If you fail to take the required minimum distribution by December 31, 2015, you will receive a 50% penalty. A report by the Treasury Inspector General estimated that as many as 250,000 IRA owners miss the deadline each year, resulting in $175 million in penalties—don’t be one of them!
How can I ensure I don’t miss the deadline?
Many IRA holders choose to wait to take their required distributions until the end of the year, in order to allow for maximum tax-deferred growth. However, the holiday season is a busy time of year and many end up forgetting to do so. Don’t wait!
Confusion also occurs if you have switched your account recently or an individual has died. In the latter circumstance, the beneficiary is required to complete the deceased’s distribution. In both circumstances, institutions often do not send notification reminders. Consider automating the process so you don’t forget.
Contact your plan administrator as soon as possible to take you required minimum distribution.