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By Dan Kadlec
March 24, 2016

If you have tax-deferred savings, such as a 401(k) or IRA, and you turned 70½ last year, you may need to move fast. You have only till April 1 to take your first required minimum distribution. If you miss the deadline, you may face a tax penalty equal to 50% of the amount you were required to withdraw.

This deadline only applies to those taking their first required minimum distribution (RMD). In every subsequent year, the required minimum amount must be taken by Dec. 31. (Those who turned 70 1/2 in 2015 who waited till this year to take their first RMD may have to take a second distribution by year-end.)

As last year came to a close, millions of seniors had yet to take these distributions—an annual display of procrastination that threatens retirees with hefty penalties. Distributions from IRAs, 401(k) and other defined contribution plans are taxable as ordinary income. The IRS requires RMDs to prevent savers from delaying their tax bill indefinitely.

Two-thirds of IRA holders put off taking any distributions until the age they are required to do so, ICI data show. That means a lot of folks are likely bumping up against this important April 1 deadline. It may be easy to overlook this date, given that income tax returns must be filed by April 18 this year.

Read next: How to Retire Well No Matter What Happens in the Market

A report by the Treasury Inspector General estimated that as many as 250,000 IRA owners each year miss the deadline for required minimum distributions totaling $350 million. That tardiness generates potential tax penalties of $175 million.

Don’t be part that statistic. It’s easy to automate the process—most IRA and plan administrators will calculate your annual required minimum distribution and send you a check quarterly or yearly.

Automating your RMDs works best if you have all your tax-deferred savings in one place, which is a strong argument for consolidating your accounts. IRS rules require you to calculate your RMD amount based on the total value of all your IRAs, but you can take all of your distributions from a single account. One strategy is to take your withdrawal from the account with the highest cost basis.

Calculator: I'm retired, how long will my savings last?

If you don’t need to spend the money you withdraw right away, it makes sense to reinvest it. You can cash out the required amount and stash it in a taxable account. Or if you want to keep your portfolio intact, you may be able to transfer the investments directly to a taxable account, which will save you the hassle of selling and repurchasing the holdings. Either way, of course, you will have to pay the taxes owed.

Advertiser Disclosure

The purpose of this disclosure is to explain how we make money without charging you for our content.

Our mission is to help people at any stage of life make smart financial decisions through research, reporting, reviews, recommendations, and tools.

Earning your trust is essential to our success, and we believe transparency is critical to creating that trust. To that end, you should know that many or all of the companies featured here are partners who advertise with us.

Our content is free because our partners pay us a referral fee if you click on links or call any of the phone numbers on our site. If you choose to interact with the content on our site, we will likely receive compensation. If you don't, we will not be compensated. Ultimately the choice is yours.

Opinions are our own and our editors and staff writers are instructed to maintain editorial integrity, but compensation along with in-depth research will determine where, how, and in what order they appear on the page.

To find out more about our editorial process and how we make money, click here.

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