13 Sep What’s the penalty for not taking an IRA distribution?
Q. What is the penalty for not taking one’s Required Minimum Distribution (RMD) from IRA when money is not needed? Is it ever better for someone to pay the penalty than the resultant taxes?
A. Ignoring your Required Minimum Distribution can be costly.
The penalty for not taking an RMD can be 50 percent of the amount that was not distributed, said James Suazo, an associate financial planner with Baron Financial Group in Fair Lawn.
For example, if one is required to take $1,000 of RMD this year, failing to do so may cause a $500 tax bill, he said.
Also note that if you have multiple IRAs, the RMD can be taken from any account.
Suazo said there are instances where the IRS can waive this penalty, for example, if you are in the process of correcting the missed RMD. A form must be filed with the IRS, which Suazo recommends an accountant review before filing.
“We recommend always taking your RMD as the IRS also requires your custodian to report your accounts that are subject to RMDs,” he said. “If the money is not needed, the RMD can be placed in a taxable account to be invested.”
Keep in mind that we don’t know your tax bracket so it’s impossible to know what you would owe in taxes on the distribution, but chances are it’s not as high as the penalty would be.
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This story was originally published on Sept. 13, 2019.
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