Avoid costly RMD penalties with these key retirement strategies in the USA
Retirement savers in the USA face strict rules on withdrawals from traditional accounts. Once they reach a certain age, they must take out a minimum amount each year. Missing these payments can lead to steep penalties—but there are ways to avoid them.
In the USA, traditional retirement accounts require savers to start taking required minimum distributions (RMDs) by age 73. For younger savers, this age rises to 75. The deadline for each year’s withdrawal is December 31, though the first RMD can be delayed until April 1 of the following year.
Failing to take an RMD on time triggers a 25% penalty on the missing amount. However, those who act quickly can sometimes reduce or even waive the fine. The IRS provides Form 5329 to report a missed RMD and request penalty relief. Unlike the USA system, Germany does not enforce automatic RMDs for traditional pension plans like the Riester or Rürup schemes. Instead, payouts begin at retirement age—usually from 62—either as regular annuities or lump sums. The rules, set out in the Alterseinkünftegesetz (AltEG), offer more flexibility in how and when withdrawals are made. To prevent missed RMDs in the USA, many savers set up automatic withdrawals. This simple step helps avoid penalties caused by forgetfulness or human error.
US retirement account holders must follow RMD rules carefully to avoid financial penalties. Setting up automatic payments can prevent missed deadlines. For those who do slip up, quick action and IRS forms may still limit the damage.
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