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The Short Answer

Don't Rely on Brokerages or Fund Companies to Fix Your Missing RMDs

Retirees who don't specify which holdings to sell could be at risk for incurring a heavy tax penalty.


Question: I'm deciding what holdings to sell to meet minimum distributions from my retirement account for this year. What happens if I don't specify which part of the account from which the money should be distributed. 

Answer: With Dec. 31 fast approaching, now is the time of year that many retirees have required minimum distributions, or RMDs, on their minds. These are yearly withdrawals of funds from retirement accounts, such as 401(k)s and traditional IRAs, that must be taken beginning the year after the year in which the account holder turns age 70 1/2 (the deadline is April 1 the first year and Dec. 31 in subsequent years). Annual amounts are based on a formula that factors in life expectancy. The government requires RMDs as a way to move money out of tax-sheltered retirement accounts and into taxable accounts. For more on how RMDs are calculated, see this earlier Short Answer article.

Adam Zoll does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.