Are You Making These 5 Common Required Minimum Distribution (RMD) Mistakes?
New rules for Required Minimum Distributions (RMDs) from retirement accounts have taken effect, bringing key changes for older savers. Those reaching age 73—or 75 for some—must now withdraw set amounts each year or face penalties. The regulations include exceptions for certain accounts and working individuals, but strict deadlines remain in place.
RMDs apply to most retirement accounts, including traditional IRAs and employer-sponsored plans like 401(k)s. The starting age depends on birth year: 73 for most, but 75 for those born in 1960 or later under the SECURE 2.0 Act. Roth IRAs are exempt during the owner’s lifetime, as are inherited IRAs under specific beneficiary rules, such as spouses or eligible designated beneficiaries.
Calculating the RMD involves dividing the account balance from December 31 of the prior year by an IRS life expectancy factor. The first withdrawal must be taken by April 1 of the year after turning the required age, with subsequent deadlines falling on December 31 each year. Missing the deadline triggers a 25% penalty on the unwithdrawn amount, though this drops to 10% if corrected within two years.
Withdrawals can be aggregated from multiple IRAs, but defined contribution plans like 401(k)s require separate calculations. Even those still working must take RMDs from old employer plans unless they contribute to a current employer’s plan and own less than 5% of the business. Excess withdrawals in one year cannot be carried forward to cover future RMDs.
The updated RMD rules aim to ensure steady withdrawals from retirement accounts while offering limited flexibility. Penalties for missed deadlines remain steep, though corrections can reduce the fine. Account holders must track their obligations carefully to avoid unnecessary charges.
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