A recent survey found that most IRA owners had no intentions of taking money out of their IRA. Instead the IRA was seen as an emergency fund that the IRA owners wanted to pass on to the next generation.
The problem is the tax code requires minimum distributions be taken from a retirement account when the owner turns 70 1/2. If the IRA owner doesn’t take the RMD, they are subject to penalty taxes as high as 50% of the amount they should have distributed.
Now chances are, if the IRA owner forgets to take the RMD, they certainly aren’t going to know about, much less pay the 50% penalty. On 8/27, the IRS released informal advice saying if the IRA owner doesn’t take the RMD, and doesn’t pay the penalty tax, then the IRA owner will be subject to an additional 25% penalty tax on the penalty tax as well as an additional 25% failure to file penalty tax.
As the header on our website says, “What you don’t know can hurt you” bad.
If you know what you are doing it is a fairly simple process to have the penalty taxes waived.