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Don’t overlook your RMD

By Jennie L. Phipps · Bankrate.com
Tuesday, November 22, 2011
Posted: 4 pm ET

As of 10 days ago, 66 percent of Fidelity Investments, more than 500,000 IRA customers, who are required by the IRS to take minimum distributions from their retirement accounts for tax year 2011 have not yet taken the full amount. About 55 percent haven't taken any.

Fidelity blames this oversight on market volatility and confusion over the suspension of required minimum distributions in tax year 2009. But the IRS won't accept either of those excuses. Its penalty for the failure of someone 70 1/2 or more to take the required amount out of their retirement accounts and pay taxes on it can be as high as 50 percent.

So if you must take a required minimum distribution or you aren't sure but you are old enough, better get cracking on figuring this out. Here's a primer. Failure to meet your obligation is an expensive retirement planning mistake.

Generally, investors who are required to take required minimum distributions have until Dec. 31 of that tax year to do so. If this is your first time taking a required minimum distribution, you have until April 1 of 2012.

You don't have to be a Fidelity client to use its very helpful required minimum distribution website.

The website also includes information about managing required minimum distributions as charitable contributions. Through the end of 2011, you can transfer up to $100,000 from an IRA to a qualified charity, and that amount can be used to satisfy your RMD requirement for the year -- a way to do good and also do your duty to Uncle Sam.

RMDs are a pain in the neck for most people living in retirement, but in light of the Thanksgiving holiday, you could look at the obligation as something for which to be thankful. Far too many people don't have this problem.

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