Editorial Comment: A 50% penalty is a lot

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.