Nearly a third of retirees are playing chicken with one of the steepest tax penalties out there — and they are running out of time.
IRS rules on so-called required minimum distributions generally kick in once you reach age 70½. For 401(k)s and other defined contribution plans, it's either when you turn 70½. or you retire, whichever is later. If you've inherited an IRA, you might also be subject to RMDs, even if your own retirement is years away.
How much you need to take is usually based on the account balance at the end of the previous year, and your life expectancy based on your age. Fail to withdraw enough, and there's a 50 percent penalty on the shortfall.
Despite that steep penalty, retirees procrastinate. As of Dec. 16, just over 31 percent of Fidelity customers who were required to take an RMD hadn't yet withdrawn any funds from their accounts.
"People get busy at the end of the year, with holidays and other family obligations," said Maura Cassidy, vice president for retirement at Fidelity. "The time flies and they could forget."