Approaching Retirement? Here's What You Need to Know About Required Minimum Distributions (RMDs)
If you're approaching retirement or already retired with a traditional IRA, SIMPLE IRA, or SEP, it's crucial to understand Required Minimum Distributions (RMDs). Recent legislative changes have adjusted the age at which you must begin these withdrawals.
Updated RMD Starting Ages:
SECURE Act of 2019: Raised the RMD age from 70½ to 72 for individuals reaching 70½ after December 31, 2019.
SECURE 2.0 Act of 2022: Further increased the RMD age to 73, effective January 1, 2023.
How RMDs Are Calculated
Calculating your RMD can seem complicated, but the IRS provides worksheets to help. Be sure you're using the latest guidelines on the IRS website. If you're still working at 70 ½, some plans allow you to delay RMDs until you retire. And remember, Roth IRAs don't require RMDs until after the owner's death.
Key Points to Remember:
Annual Requirement: Once you reach the applicable age, RMDs must be taken annually to avoid IRS penalties.
Calculation: The RMD amount is calculated based on your account balance and life expectancy. The IRS provides worksheets to assist with this calculation.
Multiple Accounts: If you have multiple retirement accounts, each requires its own RMD calculation.
Common RMD Mistakes to Avoid
Avoiding RMD mistakes is crucial to keeping your retirement on track. One of the biggest issues? Forgetting to take the distribution altogether! Another common mistake is not planning long-term for RMD withdrawals, which can lead to accidentally taking the wrong amount.
Even a small miscalculation can result in big fines and penalties.
Consequences of Missing RMDs
If you skip or miscalculate an RMD, the penalty is steep—a 50% tax on the amount you should have withdrawn, plus income tax owed on it. Consulting a financial professional can make all the difference, helping you calculate the correct amount and minimize taxes. With careful planning, you can enjoy your golden years without worrying about RMD penalties.