I want to share an unfortunate story with you. Years ago, we had a man come in to our office to visit us. He was in his mid-70s and his IRA had already transitioned into its income phase, meaning he had to take his Required Minimum Distributions (RMDs) every year. He was a responsible man and had filled out all the paperwork but didn’t want to send the papers in until closer to the holiday season.
As the time drew nearer, this man suffered a heart attack. While it wasn’t fatal, it was serious enough that he spent a few weeks in the hospital. By the time he was well and returned home, his deadline to file the RMD paperwork had passed and a new year had begun. This made his IRA subject to the Excise Tax.
What is the IRA Excise Tax?
When you opened your IRA, you agreed to the begin withdrawing a certain percentage of the balance every year beginning at age 70½. Remembering to do so is your responsibility. If you forget to withdraw the money, you may be forced to pay a 50% penalty (called an excise tax) on the amount you should have withdrawn. That’s on top of the income tax you’re already paying. That means if your RMD is $10,000 and that amount falls under the 25% tax bracket, you’ll end up paying $7,500 in taxes because you missed the deadline.
That’s why it’s so important to work with a retirement guide who is able to help you with that responsibility. At Eric Scott Financial, we believe retirement is a time to enjoy your life, not to worry about financial matters. That’s what your working years were for. Let us help you relieve the stressful burden of remembering to take your RMDs each year.
If you have any questions or concerns regarding your IRA or this year’s RMD, give us a call at (435)773-9444.