- 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 The IRS calculates how much you should have withdrawn and then charges a 50 percent excise tax as a penalty.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

Introduction to Preferred Shares

Learn the difference between preferred and common shares.

View Course »

Basics Of The Stock Market

Stock Market 101 - everything you need to know but were afraid to ask!

View Course »

TurboTax Articles

What is IRS Form 8824: Like-Kind Exchange

Ordinarily, when you sell something for more than what you paid to get it, you have a capital gain; when you sell it for less than what you paid, you have a capital loss. Both can affect your taxes. But if you immediately buy a similar property to replace the one you sold, the tax code calls that a "like-kind exchange," and it lets you delay some or all of the tax effects. The Internal Revenue Service (IRS) uses Form 8824 for like-kind exchanges.

What are ABLE Accounts? Tax Benefits Explained

Achieving a Better Life Experience (ABLE) accounts allow the families of disabled young people to set aside money for their care in a way that earns special tax benefits. ABLE accounts work much like the so-called 529 accounts that families can use to save money for education; in fact, an ABLE account is really a special kind of 529.

What is IRS Form 8829: Expenses for Business Use of Your Home

One of the many benefits of working at home is that you can deduct legitimate expenses from your taxes. The downside is that since home office tax deductions are so easily abused, the Internal Revenue Service (IRS) tends to scrutinize them more closely than other parts of your tax return. However, if you are able to substantiate your home office deductions, you shouldn't be afraid to claim them. IRS Form 8829 helps you determine what you can and cannot claim.

What is IRS Form 8859: Carryforward of D.C. First-Time Homebuyer Credit

Form 8859 is a tax form that will never be used by the majority of taxpayers. However, if you live in the District of Columbia (D.C.), it could be the key to saving thousands of dollars on your taxes. While many first-time home purchasers in D.C. are entitled to a federal tax credit, Form 8859 calculates the amount of carry-forward credit you can use in future years, not the amount of your initial tax credit.

What is IRS Form 8379: Injured Spouse Allocation

The Internal Revenue Service (IRS) has the power to seize income tax refunds when a taxpayer owes certain debts, such as unpaid taxes or overdue child support. Sometimes, a married couple's joint tax refund will be seized because of a debt for which only one spouse is responsible. When that happens, the other spouse is said to be "injured" and can file Form 8379 to get at least some of the refund.

Add a Comment

*0 / 3000 Character Maximum