If you did the smart thing and saved for your golden years in an IRA or 401(k), you've probably been enjoying having access to that money in retirement. But unless you're housing your savings in a Roth IRA, there's one major money move you might need to make by the end of the year: taking your required minimum distribution (RMD). You only have until Dec. 31 to take your 2018 RMD, so if you haven't yet, now's the time to do it.

How RMDs work

The IRS doesn't want to let you keep your savings in your IRA or 401(k) forever. Instead, you're required to withdraw a minimum amount each year once you turn 70 1/2. That amount will be based on your account balance and life expectancy at the 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).

Older man and woman looking at papers

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If you turned 70 1/2 this year, you have until April 1, 2019, to take your first RMD. Otherwise, you must take that RMD by Dec. 31 or risk giving half of it away to the IRS.

That's right: The IRS imposes a 50% penalty on RMDs not taken in 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're liable for RMDs if your money is held in a traditional IRA or any type of 401(k). The only account that lets you off the hook from RMDs is a Roth IRA, which many savers don't take advantage of since higher earners are barred from contributing directly.

The end of 2018 is still a few weeks away, so you might be wondering: Why the rush? The reality is that RMDs can take a few days to process, which means that if you wait until, say, Friday, Dec. 28, to get moving, you might not complete your withdrawal in time. That said, if you get your withdrawal in the form of a check, you don't need to cash it by Dec. 31 to meet the deadline. The IRS will consider your RMD-related obligations fulfilled as long as those funds have exited your retirement plan by Dec. 31.

RMDs and taxes

Unless your RMD comes from a Roth 401(k), the withdrawal you receive will be subject to taxes. This isn't a penalty; it's the same tax that applies to all withdrawals taken from traditional IRAs and 401(k)s.

You can avoid that tax, however, by donating an RMD from an IRA directly to a qualified charity. This way, you won't be liable for taxes on that RMD, and you'll get a deduction that will come in handy when you file your tax return. In fact, you can distribute up to $100,000 from your IRA directly to charity and avoid paying taxes on those funds. So if you're sitting on a sizable balance and are worried about its tax implications, that could be a good solution. (Keep in mind that this works for IRAs and not 401(k) plans.) Otherwise, just plan appropriately for RMD taxes so you're not caught off-guard when you realize the IRS is due its share.

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