The government’s April Fool’s Day joke

Just about every American knows that April 15 is the last day you can file your individual income tax return before Uncle Sam comes knocking. What many are not aware of, however, is that missing a certain April 1 deadline could result in significant consequences. It's the Internal Revenue Service's (IRS) idea of an April Fool's joke, except you'll never find a reason to laugh. 

Retired people who have reached the age of 70-and-a-half are required to take distributions from their 401(k)s and individual retirement accounts if they haven't done so already. The IRS wants you to start withdrawing money from these accounts so that it can start taxing the income. 

Because the IRS is such a benevolent government agency, retirees who have reached the mandatory withdrawal age can file for an extension to April 1 of the next year. Many retirees take advantage of this extension, but a large portion of them forget to make a withdrawal on time. So what happens if you don't? Here it is, straight from the IRS: 

"If you do not take any distributions, or if the distributions are not large enough, you may have to pay a 50 percent excise tax on the amount not distributed as required."

To determine if your withdrawal is "large enough," you'll have to sift through the IRS's life expectancy tables. It's important to note as well that individuals who are still in the workforce but are at or above the minimum distribution age are not subject to this rule. The second you retire, though, you will be, so be prepared!

To keep your heard-earned retirement income out of the hands of the government, you may want to consider alternative wealth preservation strategies.