When a person is in their retirement years, certain things can have big impacts. One of these is what actions they take when it comes to their retirement accounts. Among the implications such conduct can end up having are tax implications.
This is because there are numerous tax rules related to such accounts. Among these are the minimum distribution rules. For many types of retirement accounts (including 401(k)s and IRAs) there are rules making it so once a person reached a certain age, generally 70 1/2, they are required to withdraw a certain minimum amount from their account each year moving forward.
When a retiree is subject to such rules and fails to make a minimum distribution, they could end up being subject to a hefty penalty. So, what sorts of distributions a retiree makes after they reach the age where these rules start applying is something the Internal Revenue Service may look at closely.
A recent Kiplinger article pointed to taking less than the required minimum distribution from retirement accounts as one of the things that could up a retiree’s risk of being audited. So, how a retiree acts when it comes to distributions from their retirement accounts is among the things that could impact their likelihood of getting into tricky situations with the IRS.
When facing an audit, such as an audit triggered by IRS concerns over a taxpayer’s actions regarding retirement accounts, retirees may be very worried about what impacts the audit will have on their life, retirement and finances. So, they may want to talk with a tax law attorney about what they can do to try to safeguard these things during the audit process and its aftermath.
Source: Kiplinger, “9 IRS Audit Red Flags for Retirees,” Joy Taylor, November 2016