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NEW YORK (MainStreet) — Reminder: the unwelcome RMD deadline looms. If you need to act by Dec. 31 and don't, you'll face a whopping penalty.

If that warning leaves you drawing a blank, it could be because you don't have a traditional IRA or 401(k), or are too young to face the issue.

But if you have reached 70½ and do have one or more of these tax-favored accounts, it's time to wrestle with required minimum distributions. Failing to withdraw the minimum by the deadline could leave you with a penalty equal to 50% of what you should have taken. And although withdrawals can be done at the last minute with a phone call or a few clicks of a mouse, it takes some careful strategizing to do it right, especially if you have more than one account.

In exchange for the tax deferment on IRA and 401(k) investment gains, Uncle Sam requires that account holders begin withdrawals - or "distributions" - after turning 70½. Because withdrawals are subject to income tax, the government at this point starts to collect what it is owed. 

The first withdrawal must be made by April 1 of the year following the year you turn 70½. After that, the annual deadline is Dec. 31. The amount you must take out depends on your life expectancy shown on a government table. If the table shows 20 years, you have to take an amount equal to 1/20th of your accounts' value the previous Dec. 31.

That's the first reason for not waiting until the very last second. You must find the correct table based on factors such as your marital status and the difference between your age and your spouse's age. Then you have to dig up some records to tally the values of various accounts at the end of last year.

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Once you get the RMD figure, the next step is to decide the best way to make the withdrawals. If you had $25,000 in each of four IRAs and had to withdraw $5,000, you could take all $5,000 out of one account, or split it up among the four in any way you chose.

A savvy investor will therefore consider the investment prospects of each holding. Generally, it makes sense to unload the stock, bond or mutual fund judged least likely to perform well.

Or you might use this opportunity to rebalance your portfolio, a move many undertake around the new year. If you feel too much of your assets are in stocks, you could make the RMD from a stock or stock fund, for instance.

Keep in mind that your overall asset allocation may include taxable accounts, which don't have RMDs. In figuring your desired allocation, consider all accounts together, even if you can meet your rebalancing goal with just your tax-favored accounts.

What if you don't need to rebalance and don't need the RMD for living expenses? In that case, the money withdrawn can be reinvested in an ordinary taxable account. You could even buy the same stock or fund you just sold.

Happily, there's no deadline for doing that. Do your RMD by the deadline, then hold the proceeds as cash and take your time deciding what to do next.

— By Jeff Brown for MainStreet