The report by NU Senior Editor Jim Connolly in this month’s Feature article points out a startling fact: people face a whopping 50% penalty on any undistributed “required minimum distribution” fund from certain qualified plans, such as an IRAs.

That’s 50%–not 5% or 15%.

This is a huge income planning issue and opportunity.

It’s an issue, because people who don’t do their RMDs correctly can end up paying a bundle.

It’s an opportunity because, as Connolly’s article makes clear, financial practitioners and providers can provide clients with an invaluable service by ensuring that their customers do make their RMDs within the required constraints. (See Connolly’s article here.)

A RMD is the minimum annual distribution that the Internal Revenue Service requires people to take out of their qualified plan (such as an IRA) each year after they turn age 70 1/2 .

We’d all like to think that most people who have qualified plans do make their RMDs each year, so that if the RMD is later found to fall short, that 50% penalty really won’t amount to much. After all, the penalty is on the amount not distributed–not the part that was distributed during that year. The best case scenario is that the actual penalty, for a particular year, would be but a pittance.

But, considering that some people will not make those RMDs at all-due to illness, travel, preoccupation, confusion, lack of awareness, and the other realities of retirement-that 50% figure could loom very large. Certainly, the threat of it looms large, which no doubt is the government’s intent.

It is heartening to learn, from Connolly’s report, that advisors see the problem, take it seriously, and are acting on it-by making RMD checks a regular part of annual reviews, etc.

But, truth be told, this is not a half-second process. The advisor needs to have a lot of facts at hand about the client’s qualified money, the skill to do the assessments (or to check the assessments made by the custodians of the qualified plans), and a business system in place to handle the reminders, checks, and follow-ups efficiently and effectively.

Read Connolly’s article for some thoughts and pointers from advisors who are in the know. It’s time well spent.