• Print
  • Default text size A
  • Larger text size A
  • Largest text size A
close

Links provided by Fidelity Brokerage Services

fidelity-fbs-iconThese links are provided by Fidelity Brokerage Services LLC ("FBS") for educational and informational purposes only. FBS is responsible for the information contained in the links. FICS and FBS are seperate but affiliated companies and FICS is not involved in the preparation or selection of these links, nor does it explicitly or implicitly endorse or approve information contained in the links.
close

Published by Fidelity Interactive Content Services

Content for this page, unless otherwise indicated with a Fidelity pyramid logo, is published or selected by Fidelity Interactive Content Services LLC ("FICS"), a Fidelity company with main offices in New York, New York. All Web pages that are published by FICS will contain this legend. FICS was established to present users with objective news, information, data and guidance on personal finance topics drawn from a diverse collection of sources including affiliated and non-affiliated financial services publications and FICS-created content. Content selected and published by FICS drawn from affiliated Fidelity companies is labeled as such. FICS selected content is not intended to provide tax, legal, insurance or investment advice and should not be construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any security by any Fidelity entity or any third-party. Quotes are delayed unless otherwise noted. FICS is owned by FMR LLC and is an affiliate of Fidelity Brokerage Services LLC. Terms of use for Third-Party Content and Research.

Beware the April 1 IRA deadline

Quick action may be necessary to avoid 50% penalty.

  • By Bill Bischoff,
  • MarketWatch
  • – 03/25/2014
  • Facebook.
  • Twitter.
  • LinkedIn.
  • Google Plus
Please enter a valid e-mail address
Please enter a valid e-mail address
Important legal information about the e-mail you will be sending. By using this service, you agree to input your real e-mail address and only send it to people you know. It is a violation of law in some jurisdictions to falsely identify yourself in an e-mail. All information you provide will be used by Fidelity solely for the purpose of sending the e-mail on your behalf.The subject line of the e-mail you send will be "Fidelity.com: "

Your e-mail has been sent.

This story has nothing to do with your 2013 tax return. But it has everything to do with an April 1 deadline for owners of traditional IRAs who turned age 70½ last year.

Once you reach that magic age, our beloved Internal Revenue Code says you must start taking mandatory annual withdrawals from your traditional IRAs — including any simplified employee pension (SEP) accounts and SIMPLE-IRAs that you may have set up as a small business owner.

Living better in retirement

More on retirement income, Social Security and other issues that affect you.

These mandatory payouts are called required minimum distributions, or RMDs. If you fail to take them, you can be hit with a stiff penalty. Of course, taking RMDs also means getting stuck with the resulting extra federal income tax bills. In fact, the whole idea behind the RMD rules is to force folks who would otherwise leave their IRAs untouched to start taking taxable withdrawals. That way, the Feds get their share of your IRA money sooner rather than later.

Required minimum distribution basics

Your first RMD must be taken by no later than April 1 of the year after the year you turn age 70½. So if you turned 70½ last year, the April 1 deadline for your initial RMD is almost upon you. Your initial RMD is actually for the 2013 tax year, even though you might not withdraw it until this year.

If you fail to withdraw at least the initial RMD amount by April 1, the IRS can sock you with a penalty equal to 50% of the shortfall (the difference between the RMD amount you should have taken out for the 2013 tax year and the amount you actually took out, if anything). That 50% penalty is one of the most punitive to be found in the Tax Code, and it is way too expensive to ignore.

Now, if you took traditional IRA withdrawals during 2013 that equaled or exceeded the amount of your initial RMD, you are blissfully unaffected by the April 1 deadline. All you have to do now is remember to take out your second RMD, for the 2014 tax year, by Dec. 31 of this year.

But if you have not yet withdrawn the full amount of your 2013 RMD, the April 1 deadline is very much for real, and you must withdraw enough between now and April 1 to satisfy the IRS. If you fail to do so, you’ll be charged the 50% penalty on the shortfall. Ouch!

The RMD amount that you must withdraw by April 1 equals the combined balance of all your traditional IRAs divided by a life-expectancy factor based on your age as of Dec. 31, 2013. Take that number and subtract any traditional IRA withdrawals you took during 2013. The remainder is what you must withdraw by April 1 to avoid the 50% penalty for failure to comply with the RMD rules. For full details on how to calculate RMDs and all the other RMD rules, see Understanding the IRA Withdrawal Rules.

The last word

Now for some good news: if you have several traditional IRAs, you need not take an RMD from each one. You can figure out your total RMD amount for the 2013 tax year and take the necessary money out of any one or more of your IRAs between now and April 1.

More good news: Roth IRAs established in your name are exempt from the RMD rules for as long as you live. So you can continue to invest the full amount of your Roth IRA balances and thereby continue to produce tax-free income for as long as you wish. That is just one more reason to love Roth IRAs.

  • Facebook.
  • Twitter.
  • LinkedIn.
  • Google Plus
Please enter a valid e-mail address
Please enter a valid e-mail address
Important legal information about the e-mail you will be sending. By using this service, you agree to input your real e-mail address and only send it to people you know. It is a violation of law in some jurisdictions to falsely identify yourself in an e-mail. All information you provide will be used by Fidelity solely for the purpose of sending the e-mail on your behalf.The subject line of the e-mail you send will be "Fidelity.com: "

Your e-mail has been sent.
Copyright © 2015 Dow Jones & Company, Inc. All Rights Reserved.
Votes are submitted voluntarily by individuals and reflect their own opinion of the article's helpfulness. A percentage value for helpfulness will display once a sufficient number of votes have been submitted.
Content for this page, unless otherwise indicated with a Fidelity pyramid logo, is published or selected by Fidelity Interactive Content Services LLC ("FICS"), a Fidelity company with main offices in New York, New York. All Web pages that are published by FICS will contain this legend. FICS was established to present users with objective news, information, data and guidance on personal finance topics drawn from a diverse collection of sources including affiliated and non-affiliated financial services publications and FICS-created content. Content selected and published by FICS drawn from affiliated Fidelity companies is labeled as such. FICS selected content is not intended to provide tax, legal, insurance or investment advice and should not be construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any security by any Fidelity entity or any third-party. Quotes are delayed unless otherwise noted. FICS is owned by FMR LLC and is an affiliate of Fidelity Brokerage Services LLC. Terms of use for Third-Party Content and Research.
fidelity-fbs-iconThese links are provided by Fidelity Brokerage Services LLC ("FBS") for educational and informational purposes only. FBS is responsible for the information contained in the links. FICS and FBS are seperate but affiliated companies and FICS is not involved in the preparation or selection of these links, nor does it explicitly or implicitly endorse or approve information contained in the links.
Before investing, consider the funds' investment objectives, risks, charges, and expenses. Contact Fidelity for a prospectus or, if available, a summary prospectus containing this information.  Read it carefully.