Frequently Asked Questions
What happens if I miss the December 31 deadline for my RMD?
If you fail to withdraw the full RMD amount, the IRS can impose a penalty of 25% on the amount you failed to withdraw. However, if you realize the mistake and withdraw the funds quickly, and then file Form 5329 with the IRS explaining the reason for the shortfall, the IRS may agree to reduce the penalty to 10% or even waive it entirely if you can show reasonable cause for the error.
How much of my Social Security benefit is taxable?
It depends on your “combined income,” which is your adjusted gross income (AGI) plus non-taxable interest plus one-half of your Social Security benefits. For an individual, if your combined income is between $25,000 and $34,000, you may have to pay income tax on up to 50% of your benefits. If it’s over $34,000, up to 85% of your benefits may be taxable. For married couples filing jointly, up to 50% is taxable for income between $32,000 and $44,000, and up to 85% is taxable for income above $44,000.
Do I still need to rebalance my portfolio if I’m fully retired and focused on income?
Yes, rebalancing is still important. Even a conservative portfolio designed for income can become unbalanced. For example, if interest rates fall, the value of your bonds may increase relative to your stocks, making your portfolio more conservative than intended and potentially reducing future growth needed to combat inflation. Rebalancing helps you maintain the right mix of assets to manage risk while still meeting your long-term income and growth objectives.
Can I use a Qualified Charitable Distribution (QCD) to donate to any organization I want?
No, a QCD must be made to a 501(c)(3) organization that is eligible to receive tax-deductible contributions. It cannot be made to private foundations or donor-advised funds. Your IRA custodian can help you verify if a charity is eligible, or you can use the IRS’s Tax Exempt Organization Search tool on their website to check an organization’s status.
How can I easily track my spending for my end-of-year budget review?
While you can use pen and paper, many find it easier to use free budgeting apps or software that can link to your bank and credit card accounts. These tools automatically categorize your transactions, making it simple to see exactly where your money is going. Alternatively, reviewing your monthly bank and credit card statements and tallying up the expenses by category in a simple spreadsheet is also a very effective method.
