Failure to take minimum disbursement could draw 50% penalty.
If the minimum amount is not taken out of retirement accounts, there could be stiff penalties, according to the Financial Advisor in “50% Tax on Missed RMDs May Be Waived.”
Money is put into qualified retirement accounts on a pre-tax basis. No income tax needs to be paid on the money at that time.
The government is counting on the money in the retirement accounts being withdrawn someday, and then taxing it. The government actually hopes to make more money overall through this arrangement.
Not understanding the government’s reasoning, many people do not know that when they reach the age of 70 and a half they are required to take annual minimum disbursements out of their accounts. The government wants its taxes paid.
If the required minimum amount is not taken out, then the IRS will tax the amount that should have been taken out at a steep rate of 50%. The government wants the hoped for tax money.
The good news is that the rate is so high not necessarily to be unduly punitive, but as a way to make sure the taxpayer does not make the same mistake twice.