— For senior citizens age 70 1/2 or older who have not
yet taken the annual required minimum distribution from
their IRAs, time is running out.
seniors unknowingly miss the Dec. 31 deadline, it ends
up costing them dearly in the form of a tax penalty that
amounts to 50 percent of what they should have
of the largest financial services firms in the world,
Fidelity Investments, based in Boston, reported that as
of Nov. 27, the majority — nearly 60 percent — of
the company’s more than 800,000 IRA customers who are
supposed to take required minimum distributions for the
tax year 2014 had yet to take the full amount from their
watch the number weekly throughout the year, and we see
it decline as it gets closer to the end of December, but
we have concerns when we see a large number of customers
who have taken nothing or have not finished taking their
required distributions," said Maura Cassidy,
director of retirement products at Fidelity.
may not be a complete picture, of course. Some customers
may be taking their required minimum distributions from
other IRAs they own. "They may be satisfying their
requirements at their other IRA provider and we would
have no way of tracking that," Cassidy said.
required minimum distribution rule was put in place to
make sure IRA and 401(k) account owners pay their fair
share of taxes on retirement savings during their
lifetime, rather than hoarding the money, delaying
taxation indefinitely and leaving it to heirs.
of Roth IRAs do not have to make required withdrawals.
They also owe no taxes on their withdrawals because all
contributions to the account have already been taxed and
the interest is allowed to grow tax-free.
Internal Revenue Service has established a uniform
lifetime table to determine what percentage of the
account must be withdrawn at different ages. For
instance, if the IRA account balance is $100,000 and the
account owner is 70 with a birthday before June 30, that
person would need to withdraw at least $3,649.64.
IRS has another distribution table for beneficiaries of
retirement funds and account owners who have much
Kindler, a partner at the Pittsburgh accounting firm
Horovitz Rudoy & Roteman, said although in past
years, the firm has seen several clients who forgot to
take their required minimum distribution, it is becoming
plan administrators, particularly from the larger
brokerage houses, tend to be more proactive in reminding
their customers," Kindler said. "One
recommendation we typically make to clients is that they
sign up for automatic withdrawal of the required minimum
distribution from specific accounts."
there are a couple of other mistakes that people can
make, he said.
rules are slightly different for traditional IRAs versus
401(k)s. For 401(k)s, investors must calculate the
required minimum distribution for each account and make
separate withdrawals from each. But investors can total
all IRA account balances and take the required minimum
distribution from one account.
get the rules confused," Kindler said. "They
think they can make one withdrawal from a 401(k) to
satisfy the requirement, but end up falling short of the
rules, making them subject to a very onerous 50 percent
penalty," he said.
an investor failed to make a required $5,000 minimum
withdrawal, the IRS would levy a penalty of 50 percent
or $2,500. After deducting another $750 for taxes at a
15 percent tax rate, the investor who should have
withdrawn $5,000 would be left with only $1,750 after
sending a check for $3,250 to the federal government.
IRS often does allow some forgiveness, according to
find with most customers, if they take out the amount
they missed as soon as possible and apply to the IRS for
an exception to the penalty, the IRS often waives the
penalty," she said.