As you gather your documents and prepare for the coming tax season, those who turned 70 more than six months ago have one more thing to think about before the year ends.
If you have a traditional retirement savings account and are 70 ½ or older, you will need to withdraw your required minimum distribution, or RMD, before the close of 2017. Your RMD is the minimum amount you must take out of your retirement account each year.
But before you do that, there are some basic things you need to know.
When Is the RMD Deadline?
While the IRS deadline is Dec. 31, keep in mind that the last business day of the year is Dec. 29. So, if you need to make any money moves before taking the withdrawal, you won’t be able to after that day.
If you turned 70 ½ this year, your deadline to withdraw your first required minimum distribution is technically April 1, 2018. But you may not want to procrastinate because the amount you withdraw is added to your taxable income. If you wait until April 2018 to withdraw the cash for the first time, you’ll have to take a withdrawal twice in 2018, which could greatly increase your income and the amount you owe in taxes.
Which Retirement Accounts Does This Rule Apply to?
According to the IRS, you will need to withdraw an RMD if you have one of the following retirement savings accounts:
- Traditional IRAs
- SEP IRAs
- SIMPLE IRAs
- 401(k) plans
- 403(b) plans
- 457(b) plans
- Profit-sharing plans
- Other defined-contribution plans
If you don’t withdraw the money, you’ll owe big.
The IRS says if you don’t take the money at all or don’t take enough, you will have to pay a 50% tax on the amount you didn’t take.
How Much Money Will You Need to Withdraw?
The amount you must take is based on a series of factors, including your age, life expectancy and the amount you have in your retirement account.
Fidelity has a simple required minimum distribution calculator to help you estimate how much you should withdraw before the end of the week.
Desiree Stennett (@desi_stennett) is a staff writer at The Penny Hoarder.
This was originally published on The Penny Hoarder, which helps millions of readers worldwide earn and save money by sharing unique job opportunities, personal stories, freebies and more. The Inc. 5000 ranked The Penny Hoarder as the fastest-growing private media company in the U.S. in 2017.
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