As we have discussed in a previous newsletter, Required Minimum Distributions (RMDs) are a very important aspect of retirement and income tax planning. Generally, RMDs must be made by the end of the year. If missed, the amount that should have been withdrawn is subject to a 50% penalty.
If you think you missed your 2016 RMD or didn’t distribute enough, there may be steps available to you to try to avoid the penalty. The IRS will often allow some leniency on the penalty if it was due to a reasonable error and you are taking reasonable steps to fix it. The most important step is to acknowledge the issue and work to resolve it as soon as possible. Then work with a tax professional to take the proper steps to file the required forms to notify the IRS of the error and request a fee waiver.
Unfortunately, you cannot apply excess distributions from pre-vious years to cover the shortfall. In addition, a larger distribution in a later year in an effort to make up for a shortfall may lump income into one year. Therefore it is important to consider tax withholdings and the effect extra income may have on other benefits such as Social Security or Medicare premiums.