Failing to Take Your Required Minimum Distribution by the End of the Year Could Cost You Massive Penalties!
It is now the final month of the year and 2018 has been an exciting one. Nevertheless, if you happen to be above the age of 70 years, one thing that you shouldn’t forget doing is accessing your required minimum distribution.
RMDs, in simple terms, is the amount that must be withdrawn from your pre-tax retirement account on a yearly basis.
The said money is then added to one’s taxable income in the given year.
Nevertheless, similar to filing your tax returns, most individuals lax when it comes to handling these affairs early on.
Indeed, if you forget such a situation, you could be slapped with a tax penalty of up to 50 percent on the distribution that you were poised to take.
As a matter of fact, roughly 50 percent of customers in Fidelity that has retirement accounts with the company, and is required to take their RMDs, have actually taken them, as per information released during October.
That being said, this number does not divulge whether the said individuals have accounts in other firms from which they had purchased the said distributions.
Nevertheless, the amount that one requires to take from their RMD is calculated according to the number of retirement accounts that one has.
What Happens When You Have Different Individual Retirement Accounts?
Additionally, the total distribution might be deducted from one of your accounts if you have a number of individual retirement accounts.
Moreover, if you have a collection of different accounts such as 401(k)s and IRAs, the RMD will then have to be deducted separately.
That being said, if one is required to take their RMD for 2018, they should start as soon as possible before they get caught with the December 31st Deadline.
According to the vice president at Fidelity in the department of retirement income, Mr Keith Bernhardt, he recommends that an individual should give themselves at least five to six days prior to taking their RMDS.
Indeed, if you are calling the given firm to take your RMD, and at the given moment the market is volatile, then you might find it difficult to get in touch with someone on the phone. Hence, Bernhardt advises that individuals should give themselves at least a one week cushion.
Beginning the request for your RMD as early as possible will give you enough time to handle the selling out of the security, ensure that the sale ends up in the given account, and subsequently free the cash up.
Nevertheless, the amount of time it takes for such a process to be completed will depend and vary from one firm to the next.
That being said, here are some few tips to keep in mind when tackling your annual distributions.
Be Precise with Your Calculations
Certain firms will provide you with concise calculations regarding the amount of money you are allowed to extract from your retirement accounts once you have invested with them.
Moreover, the RMD can be extracted only once from a single IRA especially if you have a number of IRAs.
That being said, the distribution you extract should be a reflection of all your accounts.
Take an Option of Donating to Charity
With the Tax Cuts and Jobs Act being passed in 2017, charitable donations have had a different spin to them.
With the current situation posting standard deductions to be much larger, quite a number of individuals have made it possible to itemize and extract their deductions for the cash to direct it to charity.
However, when you make your RMD donation via a qualified charitable distribution, there is no need for you to make any itemization when it comes to your deductions and hence, capitalize in your tax moves.
According to Bernardt, the money has to be directed straight from your IRA to charity, which ensures that it does not appear on your taxes.
Which then means that it will not cause an effect on your Medicare Premiums as well as your Social Security taxes.
Nevertheless, you should be cautious that a charitable distribution that is qualified should be made directly to a charity group that is qualified.
Hence, it wise to know that any donations made by a donor-advised fund are not considered. Indeed, the funds have to move directly from your investment account to the charity in question.
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