Column: To the year-end checklist, add mandatory retirement withdrawals

Column: To the year-end checklist, add mandatory retirement withdrawals
From Reuters - November 30, 2017

CHICAGO (Reuters) - Nothing good lasts forever, and so it is with tax-deferred retirement saving - that is, the deferred part.

Contributions to traditional IRAs and 401(k) accounts are not taxed upfront, but the U.S. government gets its due down the road. When you reach age 70-1/2, a certain amount of your tax-deferred savings in IRAs and most 401(k) accounts must be drawn down every year under the Required Minimum Distribution (RMD) rules. And younger people need may need to take RMDs on inherited IRAs.

Missing an RMD leaves you on the hook for an onerous 50 percent tax penalty, plus interest, on the amounts you failed to draw on time. But RMDs are easy to forget. Almost half (49 percent) of Fidelity Investment account holders who need to take an RMD had not yet withdrawn anything for 2017 as of early November.

That points toward a last-minute rush, said Maura Cassidy, the companys vice president of retirement. Its a little bit like the last-minute rush to meet the tax deadline in April ... But you want to make sure you do this properly, and it gets more difficult as the holidays approach.

Cassidy notes that the stock market is closed on some days around the holidays, which can slow the time required to settle trades on holdings that might be needed for an RMD. The RMD deadline is Dec. 31, but that falls on a weekend this year, which means any trades you need to generate cash for an RMD mustbe done before the markets close on Dec. 29.

The one exception: if you turned 70-1/2 years old this year, you have until April 1, 2018, to take your 2017 distribution. However, doing that means you will be taking two distributions in the following yearwhich could have a significant impact on your income taxes.

The amount of RMD you owe is determined by your age, account balance and life expectancy. Fidelity, Vanguard and other large investment firms offer automatic RMD services that will automatically calculate the amounts and make distributions. And Fidelity launched a family of mutual funds earlier this year (Fidelity Simplicity RMD Funds) that combines target date fund allocations with RMD automation.

Although RMDs are calculated for each IRA you own, you do not need to take a separate distribution from every account. You could total up your RMDs and take it all from one IRAone that is a poor performer, perhaps, or one that will help you rebalance an account that might be overweight in equities against your overall allocation plan.

But 401(k) distributions must be taken from each account where an RMD is required. (If you participate in a 403(b) plan, RMDs must be calculated separately for each account but can be aggregated and taken from any 403(b) account.) And no RMDs are required if you still work for the company that sponsors the plan.



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