- Days left

The Early Tax Deadline You Can't Afford to Miss

×
IRA tax deadline retirement savings
Alamy
For millions of taxpayers, the April 15 deadline to file your 2012 return already looms large. But for a select group of retirement savers, there's a deadline coming even sooner -- and missing it could cost you a huge amount of money.

That select group includes those who have money in traditional IRAs and 401(k) accounts and who turned age 70½ during 2012.

Under what's known as the required minimum distribution or RMD rules, you have until April 1 of the following year to make your first required withdrawal. In subsequent years, you need to take money out of your account by Dec. 31 to cover that year's RMD.

What If You Don't Need the Money?
The laws governing RMDs aren't really based on need. Rather, they reflect the idea that IRAs and 401(k)s were made to encourage retirement savings rather than as a tax shelter for money to eventually go to heirs. The RMD rules make sure that retirees have to withdraw -- and include in taxable income -- part of their retirement accounts every year.

The only exception to the RMD rule governs 401(k)s. If you're still working, you don't have to take 401(k) RMDs until you retire. IRAs, though, don't have that exception, so even if you're still working, you have to take a withdrawal from your IRAs.

How Much Do You Need to Take Out?
Calculating the amount of your RMD is somewhat complicated, although the IRS provides help with worksheets and tables. The basic idea, though, is that you must take withdrawals based on your life expectancy.

So for instance, if you were still age 70 at the end of 2012, you would take your IRA balance as of the end of 2011 and then divide it by your life expectancy of 27.4 years. The resulting dollar amount would be your RMD for the 2012 tax year, which you'd need to take out by April 1.

What About Roth IRAs?
Unlike traditional IRAs, Roth IRAs aren't subject to the RMD rules. As a result, you never have to withdraw from a Roth IRA if you don't want to.

What Happens If You Don't Take Your RMD?
The penalties that the IRS imposes for failing to take a required minimum distribution are harsh. The IRS calculates how much you should have withdrawn and then charges a 50 percent excise tax as a penalty.

Get more information about required minimum distributions from this link to the IRS website.


Increase your money and finance knowledge from home

Banking Services 101

Understand your bank's services, and how to get the most from them

View Course »

How much house can I afford

Home buying 101, evaluating one of your most important financial decisions.

View Course »

TurboTax Articles

5 Tax Tips for Single Moms

If you're a single mom filing your taxes, make use of tax credits and deductions that can help reduce your taxable income and reduce the amount of tax you pay. A number of strategies, credits and deductions can be used to reduce taxable income, and in some cases, allow tax refunds even if you didn't pay in any taxes. When you use TurboTax, we'll ask simple questions and handle these calculations for you.

Essential Tax Forms for the Affordable Care Act

The Affordable Care Act (ACA), also referred to as Obamacare, affects how millions of Americans will prepare their taxes in the new year. The law now includes penalties for all who haven?t obtained health insurance -- and those penalties are expected to be paid at tax time. The ACA also provides tax credits to help people pay for insurance, and you can claim those credits when you file your taxes. The Internal Revenue Service (IRS) has introduced a number of tax forms to accommodate the ACA.

What is Form 1095-A: Health Insurance Marketplace Statement

If you bought health insurance through one of the Health Care Exchanges, also known as Marketplaces, you will receive a Form 1095-A which provides information about your insurance policy, your premiums (the cost you pay for insurance) and the people in your household covered by the policy.

Keeping Yourself Safe From Tax Scams Today

During tax time, there are numerous types of tax scams. These illegal schemes can result in the taxpayer being responsible for extra interest, penalties and possible criminal prosecution. Tax schemes and scams attempt to gain access to your financial information by email, telephone, fax or mail. They also may attempt to falsely collect tax you owe to the Internal Revenue Service. Using TurboTax ensures your financial information remains safe.

Health Care and Your Taxes: What's the Connection?

Your cost for Marketplace health insurance is based on the income you file on your tax return. Your reported income also determines your eligibility for the tax credits and penalties associated with Marketplace health coverage. Everyone has to have health insurance and by filing your taxes, you let the government know if you carry health insurance. The tax system acts as a way for the government to levy a penalty on those who don?t have it and to provide assistance, by means of a tax credit, to those who do.

Add a Comment

*0 / 3000 Character Maximum