If you've hit your 70th birthday-or know someone who has-make sure you're taking the proper amount from your IRAs or risk a potential 50 percent tax on money that should have been withdrawn, the Wall Street Journal reported.
The rules in question involve ârequired minimum distributionsâ from individual retirement accounts, which are required once the IRA's holder reaches the age of 70_. The amount that has to be withdrawn is based on life expectancy. (To gauge life expectancy, go to IRS Publication 590, Individual Retirement Arrangements, available at www.irs.gov/pub/irs-pdf/p590.pdf.
The IRS, which has not strictly enforced the minimum distributions because they were hard to track, is not taking a stricter line. In the past, it was more âa case of self-policing, more than anything else,â Stephen P. Vitale, a certified financial planner and senior vice president at J.B. Hanauer & Co., a financial-services firm in Parsippany, NJ, told the Journal.
Usually it took an audit or other investigation to unveil a failure to withdraw the funds and the IRS tended to waive the rigorous penalty, Ed Slott, an accountant in Rockville Centre, N.Y., and publisher of Ed Slott's IRA Advisor, told the Journal.
This year, however, institutions that hold IRAs-including mutual-fund companies, banks, insurers, brokers, etc.-are required to let the IRS know annually whether required withdrawals were made during the year. The IRS will be notified each spring, at the same time the IRA trustee sends a reminded to make the required withdrawal, the Journal reported.
If you haven't already done so, the time has come to take the required withdrawals since the penalty is harsh-if you are required to take $50,000 and don't do it, you could end up paying $25,000 in taxes.
âIRAs are one of the largest sources of tax revenue to be collected as people start aging,â Slott told the Journal. âNow that so much notification [about required withdrawals] is going on, I don't see the IRS being so lenient about penalties anymore.â