December 31 is the deadline for withdrawing your RMD for this tax year. If you haven’t made a withdrawal for this year, do it immediately. If you wait until after January 1, the IRS penalties are severe.
Annual Angst
It is the same story every year. For those of us in the older bracket, we need to withdraw our RMD amount from deferred tax accounts. It can be done anytime during the year, based on two factors: age and account balance.
Get Help
As is often the case, the rules and instructions can be confusing. Therefore, rather than trying to repeat from the IRS’s documents, I heartily suggest getting help from a tax professional or the broker/custodian where your tax deferred accounts are located. They should have the resources to help.
Here is the Info
For those wishing to delve into the IRS’s words on RMDs, a good starting point is “Retirement Topics — Required Minimum Distributions (RMDs)” and “Retirement Plan and IRA Required Minimum Distributions FAQs“. There are other IRS publications to look at. Generally, the more IRS documents you read, the more complex they get. That is why I recommend getting help.
Don’t Skip It
Do take care to make sure you take your RMDs every year. As mentioned, the penalty for not taking an RMD is severe. In IRS’s words: “If you do not take any distributions, or if the distributions are not large enough, you may have to pay a 50% excise tax on the amount not distributed as required.”
Opportunities
One can use some of the RMD amount to make charitable contributions. If done directly from the tax deferred account, one can avoid the taxes normally paid when contributing from previously-withdrawn money. This is called a Qualified Charitable Distribution (QCD). In addition, a QCD in considered part of meeting the RMD requirement. Be sure to follow all regulations about QCD. Another reason to get help.
Afterglow
After I take my RMD each year, I am left with the puzzle: what to do with the funds. Of course, if I need the income to live on, paying expenses, I use it for that purpose. There is a temptation to spend when first receiving a large sum of any kind, so I must be judicious with the amount received, and parcel it out over time. If any funds are left over, I bank the balance and use if for saving, and investing should the opportunities arise.
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Displayed is one of several experimental telephones by Alexander Graham Bell, displayed at the Philadelphia Centennial Exposition , 1876. Courtesy National Museum of American History.
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