For the Internal Revenue Service (IRS), December 31 is a big, big day for a multitude of reasons, most of which center around gaining access to your bank accounts. However, if you pay close attention to your finances and follow a comprehensive financial plan, you can make sure that you only pay your fair share of taxes and not a penny more.
For retirees, that means you have to keep a close eye on those retirement accounts – the IRS certainly does. For instance, if you are 70 ½ or older, the IRS mandates that you must begin taking a required minimum distribution (RMD) from your retirement accounts annually. And, if you fail to take your distribution by Dec. 31, the IRS, by law, can step in and claim 50% of the estimated withdrawal amount as a tax penalty – 50%!
Don’t let your hard-earned money go to waste like that.
The retirement accounts covered by this law include, but are not limited to: traditional IRAs, 401(k)s, 403(b)s and 457(b)s. Roth IRAs are not affected.
There is one exception to the law: if the account owner is 70 ½ and taking his or her first RMD, the deadline is extended to April 1, 2014. However, in that scenario, the retiree would have to make two withdrawals in the same calendar year, which could affect his or her taxable income for that year.
So, to make sure you’re maxing out your earnings potential in regards to your RMDs and taxable income, it may benefit you to meet with your Financial Advisor to discuss your strategy for future withdrawals.
To find out your RMD amount, check out this handy online calculator: http://apps.finra.org/Calcs/1/RMD