Beware of the 50% Penalty

With 2017 coming to an end, it’s time to review those year-end deadlines for Required Minimum Distributions (RMDs).

If you turned age 70 1/2 before 2017: The deadline for taking the 2017 RMD from your IRA or retirement plan is Dec. 31, 2017. This applies to every traditional IRA owner who reached age 70 1/2 in 2016 or earlier, every qualified plan participant who turned age 70 1/2 and retired prior to 2017, and every beneficiary who holds an inherited IRA (Roth or traditional). Review your records and make sure you take the full required distribution before the end of the year to avoid a 50% penalty.

Note: If you are a participant in a qualified retirement plan (such as a 401(k)), and you own 5% or less of the company that sponsors the plan, you can defer the start of required minimum distributions until retirement, even if later than age 70 1/2.

If you turned age 70 1/2 in 2017: You also have a RMD due for the year 2017, but you have a choice. This first year’s distribution can be postponed until as late as April 1, 2018. Your decision to take (in 2017) or postpone (until 2018) this first required distribution becomes irrevocable once the calendar ticks over to 2018, so you should deliberate now regarding which is the better option for you. Keep in mind, if you defer the first distribution until April 1, 2018, your 2018 RMD deadline is December 31, 2018, which means you have two taxable distributions in 2018 (the 2017 RMD you deferred and your 2018 distribution).

These are merely summaries of highly complex tax rules. Please contact TruNorth Capital and/or consult your tax advisor regarding your RMD.