Have YOU been making any mistakes regarding your RMDs?
If you make an error on your required minimum distributions, you could withdraw less than is required. And this could trigger one of the most rigid tax penalties out there. The IRS sets an excise tax of 50% of any shortfall.
So the next time you check your IRA or 401(k) balance, ask yourself, “How much of this money is really mine?” There’s a big chance that a good chunk of that money will go to Uncle Sam during your retirement.
That’s because when you turn 70 and a half, the IRS requires you to take a required minimum distribution (RMD) from your qualified retirement savings. This includes a traditional IRA, 401(k), and 403(b).
You’ll need to take that distribution each year until the account is depleted or you pass away. In a nutshell, the IRS wants their tax cut for the rest of your life, your spouse’s, and even your beneficiaries’ lives.
If you don’t take your required minimum distribution, they’ll send you a love letter saying you owe considerable penalties. Because of that risk, advisors often suggest being cautious about RMDs by taking out just a bit more than the calculated amount.
Take too much out of your accounts, however, and you could face a higher tax bill and deplete your nest egg in the long run. So let’s learn a bit more about some common RMD mistakes many seniors make.
…Click “Next” to see what mistakes you might be making. But first: What exactly IS an RMD?