Tax deadline: Older Americans may face this large penalty
For Americans who are at least 70 ½ years old, if you don’t withdraw your required minimum distribution (RMD) by year’s end you are at risk of being penalized by the IRS.
An RMD is a requirement that certain older individuals withdraw a calculated amount of money from their retirement accounts each year. It applies to most retirement accounts, including work plans like a 401(k) and traditional IRAs.
Roth IRAs, however, do not require withdrawal until the death of the owner.
The amount you owe is calculated by dividing your account balance as of Dec. 31 last year by your life expectancy. The IRS has its own published life expectancy calculations.
Withdrawals can be included in your taxable income, which could potentially push some individuals into higher tax brackets.
The deadline for most people is Dec. 31. It also applies to people who have inherited a retirement account.
However, those who reached the age of 70 ½ during 2018 have until April 1 to withdraw their first RMD. But they would still have to meet the Dec. 31 deadline next year, which would require taking two RMDs within the year.
For those with multiple accounts, RMDs must generally be withdrawn separately.
Failing to meet the deadline could result in the IRS penalizing retirees for as much as 50 percent of the amount they were supposed to withdraw. However, there are ways the penalty can be waived under certain circumstances.