Miss This Retirement Deadline and You Could Owe the IRS Thousands of Dollars
Once you reach age 70 1/2, the IRS requires you to start taking distributions from your traditional IRAs. If you don't withdraw at least as much money as the agency demands, you'll be stuck with an enormous tax penalty. And the clock is ticking: Required minimum distributions (RMDs) for all but your first year must be made by Dec. 31.
RMDs are based on both your age and the balances in your tax-deferred retirement savings accounts (i.e., non-Roth accounts). The younger you are and the higher the balances in your accounts, the bigger your RMD will be for the year -- meaning that your first few RMDs are typically the largest.
To calculate your RMD, you use the IRS-provided worksheet that fits your particular situation. If your spouse is the sole beneficiary on your IRAs and is more than 10 years younger than you, you'll use the joint life RMD worksheet. Everyone else uses the uniform life RMD worksheet. The worksheet will walk you through the process of adding up the balances of your IRAs as of Dec. 31 on the previous year, looking up your life expectancy figure on the IRS-provided table, and dividing your IRA balances by your life expectancy to come up with your required minimum distribution total for the year.
Source: Fool.com
