Understand RMD Rules: When & Why Retirement Savers Must Start Taking Distributions
Retirement savers should be aware of the rules surrounding required minimum distributions (RMDs) from their Individual Retirement Accounts (IRAs) and other pre-tax retirement plans. The age at which these distributions start varies, with penalties for missing them.
The starting age for RMDs ranges from 70½ to 75, depending on your birth year. You must take these distributions, which are taxed as ordinary income, or face penalties of up to 25% of the amount not withdrawn. The IRS calculates RMDs based on your age, life expectancy, and the account balance as of Dec. 31 of the prior year.
Roth IRAs, however, do not require minimum distributions for the original owner, allowing assets to grow tax-free. If you delay your first RMD until the year after you reach the required age, you will have to take two distributions in that year. You can always withdraw more than the minimum, but you cannot withdraw less.
The government enforces these rules to start collecting tax revenue from retirement accounts. The penalties for missing RMDs are significant, so it's crucial to understand and follow these rules. Inherited IRAs have different rules based on your relationship to the original owner and when you inherited it. Consult a financial advisor for personalized advice.
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