The idea behind RMDs is that the government has allowed your retirement savings to grow tax-deferred, but at a certain point, they want to be able to collect taxes on your retirement savings, so they make you withdraw a percentage of your retirement account each year.
If you have a retirement account like a Traditional IRA, 401(k), or similar tax-deferred account, you’ll likely need to start taking required minimum distributions (RMDs) at a certain age.
HERE’S WHAT YOU NEED TO KNOW:
- RMDs generally apply if you have a Traditional IRA, SEP IRA, SIMPLE IRA, or a workplace retirement plan like a 401(k) or 403(b) (Roth IRAs are excluded while the original owner is alive).
- As of 2023, you must begin taking RMDs at age 73 (if you turned 72 after January 1, 2023). If you turned 72 before 2023, your RMDs have already started.
- If you miss an RMD, the IRS penalty is generally 25% of the amount you were supposed to withdraw.
- Roth IRAs do not require RMDs during the original account owner’s lifetime.
- If you’re still working and contributing to your current employer’s retirement plan (and you’re not a 5% or greater owner), you may be able to delay RMDs from that account.
The bottom line is that if you’re age 73 or older and own tax-deferred retirement accounts, you likely need to take an RMD this year. If you’re unsure or want help calculating your specific amount, let’s connect! Proactive planning can help avoid penalties and optimize your retirement strategy.
