How many times in life do you have to worry about removing too little money from a financial account? Before retirement, there are few such concerns but, for most retirement plans, once you reach age 70, you must take a required minimum distribution (RMD) every year from your plan. (Roth IRAs are excluded they do not require withdrawals at any specific point until the owner passes away.)
Minimum distributions must be taken by the last business day of the year (December 28 for 2018), except for your first one. The first RMD must be taken by April 1 of the calendar year after you turn 70. To avoid two RMDs falling in the same tax year, it's usually best to take your first distribution in the year you turn 70-1/2 rather than waiting until the following April 1.
Why April 1? Perhaps it's an IRS attempt at humor. In any case, it's important to take your RMD within the deadline every year, whether it's the original April deadline or the December deadlines thereafter. Otherwise, you will incur a 50% penalty on the amount that should have been removed from the account but was not and that is independent of the income tax owed.
Here are a few other RMD mistakes that can waste your precious retirement funds:
It's possible to rectify some RMD mistakes by requesting a penalty waiver from the IRS. You'll need to fill out Form 5329 and attach an explanation why the full RMD was not taken due to "reasonable error" and that "reasonable steps" are underway to resolve the problem. But why let it get to that stage at all? Plan your RMD strategy in advance and if you need help, seek the advice of a qualified financial professional.
Regardless of where you plan to retire, the number one factor in ensuring that you can retire on your terms is your 401(k). Make sure that your 401(k) is maximizing its potential with this free analysis that checks your fees, fund mix, and other factors to help you hit your retirement goals.
Originally Posted at: https://www.moneytips.com/avoid-required-minimum-distribution-mistakes
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