In investing, what you earn doesn’t matter; it’s what you keep that’s important. That’s why anyone who is planning to retire needs to be especially careful at the end of the year. Many tax-advantaged retirement accounts (like a 401k), have deadlines that fall before the New Year, and they can result in huge penalties or missed opportunities if they aren’t met.
Here are some of those retirement dates you need to be aware of:
Required minimum distributions
If you are age 70 1/2 and older, the IRS requires that you start taking required minimum distributions (RMDs) from 401(k)s and traditional IRAs by Dec. 31, 2016, and income tax is due on each withdrawal.
Missing this deadline can result in hefty tax penalties, so you should meet this deadline by all means necessary. Please note that if you turned 70 1/2 in 2016, you can delay this first required minimum distribution until April 1, 2017, but all subsequent distributions will be due by the end of the calendar year.
Make last-minute 401(k) contributions
All 401(k) contributions are typically due by the end of the year. According to the IRS, you can contribute up to $18,000 in 2016. 401(k)s are an excellent way to allow your wealth to grow tax-free towards retirement, so you certainly should make a full effort to contribute as much as possible each year.
Don’t forget about catch up contributions
If you’re over the age of 50, the IRS grants you an additional $6,000 per year in catch-up contributions. Even if you’re not playing retirement catch-up, this is a smart option to harness tax-free growth and compounding to ensure you have a comfortable retirement.
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