Recs

1

1 Tax Deadline You're Forgetting

April 15 takes center stage come tax time. But there's another tax deadline equally deserving of your attention -- and neglecting it could cost you big time. Here's what it is and how to deal with it.

The tax deadline you've never heard of
If you turned 70-1/2 years old in 2013, you have a critical tax deadline coming up. April 1 is the deadline for people who turned 70-1/2 to take their first annual required minimum distribution from their Traditional IRAs and 401(k)s. Typically you're supposed to take it by Dec. 31 of the year you turn 70-1/2, but the deadline is extended to April 1 for the first year. For every year following, you have to take the distribution by the end of the year. Unlike Traditional IRAs and 401(k)s, Roth IRAs have no RMDs.

Postponing your RMD will cost you
Forgetring to take your RMD will hurt you significantly. Neglecting to withdraw the RMD will result in a 50% tax on the amount not withdrawn! It's up to the account holder, not the financial institution holding the retirement account, to make sure he or she withdraws the correct amount. You can withdraw more than the minimum, but any extra won't count toward satisfying next year's RMD.

Your RMD will be different from your next-door neighbor's. It's calculated by dividing the prior year-end balance of that IRA or retirement plan account by a life expectancy factor that the IRS publishes. If you have multiple retirement accounts, you'll need to calculate your RMD and make a withdrawal from each one. Or you can calculate your total RMD based on the aggregate prior year-end balances and take the total RMD amount from any single account. This strategy works well when taking the entire withdrawal from an IRA that houses lower-returning investments.

Take action today
Given the expensive penalty for failing to make a withdrawal, don't let the April 1 tax deadline slip past you. Take care of your RMD today. Reach out to all of the brokerage firms and institutions that manage your retirement accounts for guidance on RMDs. Also, be sure to check out the IRS' information on this topic. Your wallet will thank you.

Is Uncle Sam about to claim 40% of your hard-earned assets? 
Thanks to a 2013 law called the American Taxpayer Relief Act, he can -- and will -- if you aren't properly prepared.

Fortunately, The Motley Fool recently uncovered an arsenal of little-known loopholes to protect yourself from ATRA and help keep the taxman at bay when he inevitably comes calling. We reveal them all in a brand-new special report. Simply click the link below for instant, 100% FREE access. Protect your hard-earned wealth from Uncle Sam.


Read/Post Comments (0) | Recommend This Article (1)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2872717, ~/Articles/ArticleHandler.aspx, 10/23/2014 9:28:17 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Nicole Seghetti
seghetti

Nicole is a contributing writer for The Motley Fool. She's worked as a financial advisor and planner for over a decade. Nicole holds an MBA from the University of the Pacific and a chemical engineering degree from Purdue University. She welcomes you to follow her on Twitter.

Today's Market

updated 12 hours ago Sponsored by:
DOW 16,461.32 -153.49 0.00%
S&P 500 1,927.11 -14.17 0.00%
NASD 4,382.85 -36.63 0.00%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes


Advertisement