If you turned 70 and a half in 2017, the time has come to start drawing down your retirement accounts — or else Uncle Sam will claim a hefty penalty on your savings.
Sunday, April 1, is the deadline to begin receiving your required minimum distributions, or RMDs, from all traditional IRAs, SEP IRAs, SIMPLE IRAs, or workplace retirement plans.
This date only applies to those who hit the 70 and half milestone last year. Anyone who already reached that age prior to 2017, should have withdrawn their RMD by Dec. 31.
Fail to get your money out by April 1 and you’ll forfeit 50% of the sum you were meant to withdraw.
So it’s a good idea to make the move now rather than wait till that final day. You “need to take out the funds before April 1 because the IRS needs to see that the funds have left the account by the April 1 deadline,” says Susan Allen, senior manager for tax practice and ethics for the American Institute of CPAs.
Vanguard is advising investors to request their distributions no later than close of market (4 p.m. Eastern Time) on Thursday, March 29, as it and many other financial providers will be closed on Friday.
Doing it slightly ahead will give brokerage firms the necessary time and allow you to be sure you’re or have already taken the right amount out.
“Make sure your RMD is calculated correctly and ask the custodian of the account to help. Not getting that RMD out is so costly that you never want that to happen,” says Allen.
To ensure you take the correct RMD sum, you need to know the total years you’re expected to live off the income and the account balance at year’s end of 2016. Use Table III (Uniform Lifetime) in the appendices to Publication 590-B to learn your life expectancy according to the IRS. For someone who reached both 70 and a half and 71 before the end of 2017, the RMDs are calculated based on a distribution period of 26.5 years. For an IRA with a $100,000 balance, that person’s first RMD would be $3,774, based on the IRS tables.
If you’re married to someone more than 10 years younger, who is also the account’s sole beneficiary, you’ll want to use Table II of that same document to find out your longer distribution period.
You can also contact your IRA trustee or the financial institution that handles your account to learn what your RMD amount is. Many report your RMD sum on tax documents already. With an IRA, for instance, it can be found in box 12b on tax form 5498.
There is a small loophole to the deadline for those in certain workplace plans. Employees with these retirement accounts who are still working, can wait until April 1 of the year after they retire to start taking RMDs.
And remember, just because you’ve got until April 1 this year doesn’t mean you will next year. Dec. 31 is the deadline for your second RMD, meaning you will need to take two RMDs this year.
(An earlier version of this story misstated the hypothetical RMD amount for a person with a $100,000 balance.)