As you reach age 70 1/2 and beyond, you might be required to take distributions from your traditional IRA, 401(k), or other retirement accounts. These distributions are called Required Minimum Distributions, or RMDs, and the penalty for missing them is steep. If you fail to take an RMD on time, you could be facing a penalty of up to 50% of the amount you should have withdrawn.
To avoid penalties for missed RMDs, there are a few things you need to know:
1. Understand the rules: Different types of retirement accounts have different RMD requirements, and the amount you need to withdraw each year is determined by your age and the account balance. Make sure you know what your RMD obligations are for each of your accounts.
2. Check your deadlines: Your first RMD deadline is April 1 of the year following the year you turn 70 1/2. After that, you’ll need to take your RMDs by December 31 of each year. Missing a deadline can trigger a penalty, so make sure you know when your RMDs are due.
3. Keep track of your balances: Your RMDs are based on the balance of your retirement accounts at the end of the previous year. You’ll need to calculate the amount you need to withdraw based on this balance, and failing to do so can result in a penalty.
4. Automate your withdrawals: To avoid the risk of missing an RMD deadline, consider setting up automatic withdrawals from your retirement accounts. This way, you’ll never forget to take your RMD and won’t have to worry about the penalty.
5. Get professional help: RMD rules can be complex, and failing to follow them can result in a costly penalty. If you’re unsure about your RMD obligations, consider consulting with a financial advisor who can help ensure you’re on track.
In summary, missing Required Minimum Distributions from retirement accounts can result in hefty penalties that can drain hard-earned savings. By understanding the rules, checking deadlines, tracking balances, automating withdrawals, and seeking professional help, you can avoid these penalties and enjoy the benefits of your retirement accounts.