One of the biggest tax penalties the IRS can levy is reserved just for retired people. It’s a whopping 50%, and that’s before the tax due and the interest that has accumulated.
By the way, in a near zero percent interest rate environment, the government still charges you 7% interest on taxes due. What a great bunch of guys!
Anyway, the worst parts of this penalty are that it is not reversible, you can’t postdate the distribution, and it is so easy to get hit with it.
[ad#Google Adsense 336×280-IA]It’s the required minimum distribution from your retirement accounts.
After you turn 70 1/2, you must take a minimum payout from your IRAs, your 401(k)s and other tax-deferred retirement accounts.
It’s easy to figure, there’s a worksheet online.
But many folks either forget about it, their automatic withdrawal fails or they simply don’t know about it.
And if you miss it, get out of the way.
Your only hope is to recognize your error early, file the required IRS form to amend your return, and send them a letter to explain why or how you missed it.
One article I read advised folks to send them the letter, but not the penalty payment. If your explanation for not making the withdrawal is good enough, the Treasury may forgive the penalty. But if they don’t, your interest piles up.
That’s it. No grace period, no backdating withdrawals. If they don’t buy your story, you’re stuck.
If it applies to you, your brokers should have notified you sometime last year about it, but many don’t.
So if you’re part of the unlucky many who have a huge tax penalty and interest bill piling up, get on the stick and try to get it corrected now.
From what I have been able to determine, the IRS is not out to actively stick it to us on this one, but you had better have a good explanation for why you didn’t make the distribution last year. “I forgot” or “I didn’t know” probably won’t cut it.
You better believe this one. Don’t get hit with this penalty.
Good investing,
Steve McDonald
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Source: Wealthy Retirement