Attention, Older: Do not forget this important year-end money move
If you did the smart thing and saved for your golden years in an IRA or 401 (k), you've probably benefited from accessing the money in retirement. But unless you save your savings in a Roth IRA, there's a big money movement you must do by the end of the year: take your required minimum distribution (RMD). You only have 31 December to take 2018 RMD, so if you do not have it yet, it's time to do it.
How RMDs Work
IRS will not let you save your IRA or 401 (k) savings forever. Instead, you are required to draw a minimum amount each year when you become 70 1[ads1]/2. That amount will be based on your account balance and life expectancy at that time, and there are online guides you can use to determine exactly what it is. (A financial adviser can also figure it out for you).
If you have hit 70 1/2 this year, you have until 1st April 2019 to take your first RMD. Otherwise, you must take RMD by December 31 or risk giving half of it to IRS.
It's true: IRS imposes 50% penalties on RMDs not taken on time so if your RMD for the year is $ 10,000 and you fail to take any of it, you'll lose $ 5,000 of your savings just like that. Furthermore, you are responsible for RMDs if your money is held in a traditional IRA or any type 401 (k). The only account that gives you the opportunity to remove the hook from RMDs is a Roth IRA, which many savers do not make use of, as higher earners are prevented from contributing directly.
The end of 2018 is still a few weeks away, so you might wonder: why rush? The reality is that RMDs can take a few days to process, which means if you wait for, for example, Friday 28th. December, to get in motion, you can not complete the withdrawal on time. Having said that, if you get a withdrawal in the form of a check, you do not have to pay it by December 31 to meet the deadline. The IRS will assess your RMD-related obligations as long as these funds have completed the pension plan by 31 December.
RMDs and taxes
Unless RMD comes from a Roth 401 (k), you receive the withdrawal will be subject to taxes. This is not a punishment; The same tax applies to all withdrawals taken from traditional IRA and 401 (k) s.
You can avoid this tax, but by donating an RMD from an IRA directly to a qualified charity. In this way, you will not be responsible for tax on RMD and you will receive a deduction that will be useful when you submit your tax return. In fact, you can distribute up to $ 100,000 from your IRA directly to charity and avoid paying taxes on these funds. So if you are on a significant balance and are worried about their tax implications, that might be a good solution. (Remember this works for IRA and not 401 (k) plans.) Otherwise, you are planning for RMD taxes so you will not get caught when you realize that IRS is due to its share.
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