Okay, you have saved for retirement tax free for years. However, now it is time to think about the taxes.

You have been fortunate over the years to grow your IRA tax free. However, withdrawals from your traditional IRA are taxable income. You will have to make Required Minimum Distributions starting at age 70½. It is a good idea to be prepared financially, according to Kiplinger in “When Do I Have to Take My First RMD?“.

If you miss that deadline, be warned: penalties are expensive. How does half of your required withdrawal amount sound? It is bad enough to be sure you won’t miss this deadline!

It’s not as hard today to find out when you must take your RMD, although in the past this was challenging. There are online calculators that can help, and you can always ask your estate planning attorney just to be sure. The IRS gives you a little wiggle room for that first RMD–until April 1 of the year that you reach age 70½. However, here’s the kicker: the second RMD is due on December 31 of that same year. Therefore, you might end up taking two RMDs in one tax year, which could make your tax bill bigger than you had expected. You may be tempted to defer taking the first RMD, but don’t. Take it by the first calendar year in which you turn 70½ and avoid that double-RMD whammy.

There are a few factors that could change your RMD. One of them—if your spouse is more than 10 years younger than you are and is named as the sole beneficiary on at least one of your IRAs—the RMD will be less than what some online calculators show.

If you discover that you missed your RMD, don’t delay trying to fix the error. Figure out how much you should have taken and remove that amount as soon as possible from the IRA.

File Tax Form 5329, “Additional Taxes on Qualified Plans (Including IRAs) and Other Tax Favored Accounts.” You can file this with your tax return or by itself.  If you are requesting that the 50% penalty be waived, payment does not have to be made when the forms are filed.

Lastly, attach a letter explaining what happened and the steps you’re taking to fix the error.

If you’re still working, you can delay taking RMDs from your current employer’s 401(k) until after you stop working in that job, unless you own 5% or more of the company. The important word here: current employer. You’ll have to take RMDs from prior employers, even if you’re still working. However, you might be able to delay your RMD, if your current employer lets you roll over money from other retirement accounts into the current employer’s plan.

After you’ve taken your first RMD, subsequent years get a little easier. They’re due by December 31.

An estate planning attorney can advise you in creating an estate plan that fits your unique circumstances and can also make sure that your retirement and estate plans work well together.

Resource: Kiplinger (July, 2018) “When Do I Have to Take My First RMD?

For more information on elder law and estate planning, please visit my estate planning website.

Mr. Amoruso concentrates his practice on Elder Law, Comprehensive Estate Planning, Asset Preservation, Estate Administration and Guardianship.