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Don't Forget To Take RMDs By Year End

To avoid tax penalties, be sure to meet the December 29 deadline

FIDELITY VIEWPOINTS – 11/21/2017–  The end of the year is fast approaching. Have you taken your required minimum distribution (RMD) from your retirement account? Lots of people have not. Be warned: This can be a costly mistake, and one that may result in significant IRS penalties.

To avoid these penalties, please note that this year December 31 falls on a weekend, so if you need to sell positions to generate cash for the RMD, you have until markets close on December 29. The RMD must be taken by December 31.

Beginning when you turn 70½, IRS regulations generally require you to withdraw a minimum amount of money each year from your tax-deferred retirement accounts, like traditional IRAs and 401(k) plans. If you don’t take enough, you may pay a 50% IRS penalty on the amount not taken.1 This is why it’s important that you understand how RMDs work, and the timing of distributions.

Key takeaways

  • If you’re 70½, you may need to take RMDs from certain retirement accounts
  • The deadline for taking RMDs is December 31 or April 1, depending on your age
  • The withdrawal amount of RMDs also depends on your age
  • Failure to take RMDs on time can result in substantial tax penalties

How the amount is determined

Required minimum distributions are determined by your age, your account balance, and your life expectancy. If you have a spousal beneficiary who is more than 10 years younger than you and is the only beneficiary for the entire distribution year, you can base your RMD on your joint life expectancy.

Uniform lifetime table for required minimum distributions
Age 70 75 80 85 90 95 100 105
Years 27.4 22.9 18.7 14.8 11.4 8.6 6.3 4.5
Min. % 3.6% 4.4% 5.3% 6.8% 8.8% 11.6% 15.9% 22.2%
The table above shows, in five year increments, the minimum required distribution periods (based on age and the expected number of years for distributions) and percentages for tax. For a more complete picture, please visit the Uniform Lifetime TableOpens in a new window.

 

Deadlines for withdrawals

For IRAs, the RMD deadline is December 31 each year. For your first distribution (and only your first), you get a three month extension until April 1 of the following year. The same generally holds true for 401(k) plans and other qualified retirement plans. However, if you wait until after December 31 to take your RMD, you will have to take two RMDs in one year, which could affect your income tax bracket or Medicare eligibility.

If you are over 70½ and still working, you can generally delay your RMDs from your 401(k) until after you retire.1 For all subsequent years, distributions must be made annually by December 31. Don’t forget to also allow time for any trades to settle if you are selling investments.*

 

 

1. Required minimum distribution rules do not apply to Roth accounts during the lifetime of the original owner or to participants in workplace retirement plans who are less than 5% owners until they retire. RMDs are also required from 403(b) and 457(b) plans, as well as SEP IRAs, SARSEPs, and SIMPLE IRA plans. Also, it should be noted that RMDs are a consideration for inherited IRAs.
Fidelity does not provide legal or tax advice. The information herein is general and educational in nature and should not be considered legal or tax advice. Tax laws and regulations are complex and subject to change, which can materially impact investment results. Fidelity cannot guarantee that the information herein is accurate, complete, or timely. Fidelity makes no warranties with regard to such information or results obtained by its use, and disclaims any liability arising out of your use of, or any tax position taken in reliance on, such information. Consult an attorney or tax professional regarding your specific situation.
* December 31, 2017 falls on a Sunday. Be sure to allow adequate time for your transactions to close.
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Fidelity Brokerage Services LLC, Member NYSE, SIPC, 900 Salem Street, Smithfield, RI 02917