Americans over 70 will typically have to make required withdrawals from their retirement accounts before 2018 — but many savers required to do so likely haven’t taken their minimum distributions, the New York Times writes.
IRAs, Roths, 401(k)s and Turning 70½
Required withdrawals apply to most individual retirement accounts, such as traditional IRAs, Savings Incentive Match Plan for Employees and Simplified Employee Pension accounts, according to the publication.
Roth IRAs are a different issue: since contributions to such accounts are made with after-tax money, they have no required minimum withdrawals, Howard Milove, a certified public accountant with Access Wealth Planning in Roseland, N.J., tells the New York Times. Likewise, only those who have stopped working will typically have to meet minimum withdrawals from their 401(k) accounts, according to the publication. Maura Cassidy, vice president of retirement at Fidelity Investments, tells the New York Times that many seniors still working can likely wait until they retire to start withdrawing from 401(k)s.
But may IRA holders are likely behind on their required minimum withdrawals. Fidelity reported in early November that half of its IRA clients had yet to make any withdrawals for 2017, while 12% had only made partial withdrawals, according to the publication. And because Dec. 31 is during the weekend this year, Dec. 29 is the last day to make the required minimum distribution, Cassidy tells the New York Times.
Missing he deadline could result in fines equal to 50% of the money that was supposed to be withdrawn, meanwhile, the New York Times writes. The Internal Revenue Service will waive the fine in some cases if the saver provides a reasonable explanation, but there’s a risk that it won’t, according to Frank Fiumecaldo, a financial planner and director of client services at wealth manager R. W. Rogé & Company in Bohemia, N.Y., the publication writes.
Savers who don’t need the money can invest the distributions in taxable accounts — or make a charitable donation, which prevents them from having to pay income taxes on the first $100,000, Cassidy tells the New York Times.
People born between July 1, 1946 and June 30, 1947 don’t have to meet the Dec. 31 deadline as the initial withdrawals must be made by April 1 of the year a saver turns 70½, Cassidy tells the publication. But Mylove warns that waiting until April first means having to take two annual distributions next year, which could bump some people into a higher tax bracket, according to the New York Times. For those working this year, meanwhile, taking a distribution before 2018 could also put them in a higher tax bracket, the publication writes. Fiumecaldo suggests that savers talk to a financial planner or a tax advisor to determine the best approach, according to the New York Times.
To determine the minimum distribution, savers can usually get the figure from the investment company, use a Vanguard online calculator or consult the relevant IRS publication, the publication writes.
