NEW YORK (MainStreet) – Attention septuagenarians: It may be time to pay the piper.
Tax Day may not be rolling around until April 18 this year, but April Fool’s Day is a different kind of deadline for a select group of Americans. That’s the day that Americans who turned 70 ½ in 2010 will have to take their first required minimum distribution (RMD) from any IRAs they have.
That’s right: The IRS is finally going to get a chunk of the tax-deferred savings you’ve been building up all these years.
Owners of Roth IRAs are, of course, exempt from RMD rules – you’ve paid those taxes already, so you can keep your money in there for the rest of your life if you’re so inclined. But if you’re a septuagenarian with a traditional IRA and you let the April 1 deadline pass without taking your RMD, you’re in for a stiff penalty. No matter what you would have owed in taxes on the distribution, the IRS will levy a tax of 50% on the required distribution amount.
The actual amount of your RMD is calculated using life expectancy tables and the total amount of money in the account; see the IRS website for the calculation rules and tables. And if you’ve reached 70 ½ but are still working, you still have to start taking withdrawals, though your 401(k)s and company pension plans can be left intact until you decide to call it a career.
—For the best rates on loans, bank accounts and credit cards, enter your ZIP code at BankingMyWay.com.