Forget to do this before the end of the year and you could face a big tax penalty
As the calendar nears the last month of the year, be warned: If you’re 70½ or older, do not forget to take your required minimum distribution.
Required minimum distributions, or RMDs, is the amount you must withdraw from your pre-tax retirement accounts every year. That money is then added to your taxable income for the year.
But just like filing tax returns, many individuals procrastinate when it comes to checking this item off their annual to-do list. And if you forget, you could be hit with a 50 percent tax penalty on the amount of the distribution you should have taken.
Just about 50 percent of Fidelity customers who have individual retirement accounts with the firm and who must take RMDs have taken them, according to data from late October.
That number does not factor in whether those customers have accounts at other firms through which they may have taken their distributions. The amount you need to take for your RMD is calculated based on all of your retirement accounts; the total distribution, however, may be taken out of one account.
If you still need to take your RMD for this year, get started sooner rather than later to ensure you meet the Dec. 31 deadline.
“I’d recommend giving yourself at least five or six days ahead of time,” said Keith Bernhardt, vice president of retirement income at Fidelity. “If you’re calling up your firm, if the market’s volatile at the time, it might be hard to get through on the phone. I would suggest giving yourself a week or more cushion.”