Taking out too little money Because the government was concerned that traditional IRAs and qualified retirement plans were being used as tax shelters to pass tax-deferred money to heirs, laws were created to force distributions from these plans during the taxpayer's lifetime. If a taxpayer does not receive an annual distribution, that is sufficient under the Minimum Required Distribution rules, the taxpayer is found to have an insufficient distribution and will be subject to a 50-percent federal penalty tax on the amount that should have been received but was not. The point in time when a taxpayer must begin a minimum required distribution from traditional IRAs and qualified retirement plans is known as the Required Beginning Date . The calendar year in which the taxpayer retires. Unfortunately, IRAs and qualified retirement plans don't come with directions.
People receive a lot of advice about accumulating money for retirement.
Even though accumulating money is critical, it is only half of the planning process. And, what you don't know could hurt you and your family. To protect you and your family against unnecessary tax hits, you need to find out about the tax laws that can create havoc with your retirement plans. Although it is not widely known, the law provides five minimum required distribution options. Many institutions offer only one or two for ease of administration.