Are You Making These 5 Common Required Minimum Distribution (RMD) Mistakes?
Required Minimum Distributions (RMDs) are mandatory withdrawals from retirement accounts that begin at age 73 or 75, depending on the rules. These deadlines apply to most retirees, even those still working in certain cases. Missing a withdrawal or miscalculating the amount can lead to steep penalties, making careful planning essential.
RMDs must start by April 1 of the year after turning 73 (or 75 for some). After that, the annual deadline shifts to December 31 each year. The calculation is based on the account balance from December 31 of the previous year, divided by a life expectancy factor from IRS tables.
Even if someone is still employed, RMDs apply to old employer-sponsored plans, unless the account is with a current employer and the individual owns no more than 5% of the business. IRA RMDs can be taken from a single account, even if multiple exist. However, 401(k) and similar plans require separate calculations and withdrawals for each. Errors carry consequences. A missed RMD triggers a 25% penalty on the unpaid amount, though this may drop to 10% if corrected within two years. Excess withdrawals in one year cannot be carried over to future RMDs. Tools like the AARP RMD calculator can help avoid mistakes and ensure compliance.
Retirement planning must account for RMDs to prevent unnecessary penalties. Accurate calculations and timely withdrawals keep accounts in good standing. Those nearing the age threshold should review their accounts and deadlines to stay on track.
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