The number of investors using automatic withdrawals for their IRAs and 401(k) plans has dramatically increased over the past year, according to Fidelity Investments.
Fidelity has seen a 152 percent increase in automatic withdrawal accounts year-to-year with a total of 50,000 new programs being set up this year. Fidelity is custodian to about 500,000 IRA and 401(k) accounts held by people who have reached the mandatory distribution age of 70½.
IRA and 401(k) account holders who are 70½ years of age or older are required to take minimum withdrawals from their retirement accounts or be subject to a 50 percent tax penalty on the amount not withdrawn.
Forty-seven percent of Fidelity’s minimum required distribution (MRD) age account holders are now enrolled in an automatic withdrawal program. At the same tim that more people are signing up for automatic withdrawals, many others miss the deadline for withdrawals because of the complexity of the calculations and IRS regulations, Fidelity says.
Fifty-four percent of Fidelity’s MRD-age account holders have not taken any withdrawals. This number could include automatic withdrawal account holders who elected to wait until the end of the year to make withdrawals, while others may be procrastinating, Fidelity says.
Some wait until the end of the year for tax purposes, while others may want their money to remain invested as long as possible. The deadline for taking the MRD is Dec. 31.
“The record numbers in enrollment are indicative of a growing customer interest in simplifying the MRD process and making sure they do not make costly mistakes,” Fidelity says.