IRS Issues a Subtle ‘Don’t-Forget-Or-Else’ Reminder to Retirees
So, you’ve hit that golden age where you’re supposed to be gracefully enjoying your retirement, basking in the sunshine, and eating brunch at 10:30 a.m. daily. Unfortunately, the Internal Revenue Service (IRS) would like you to know that they’re still very much a part of your life—like that distant cousin who only calls when he needs money. Yes, the taxman has issued a gentle nudge (read: warning) to retirees to take their required minimum distributions (RMDs) to avoid some hefty tax penalties. Isn’t it comforting to know some things never change?
Avoid Those RMD Tax Penalties
As of December 10, the IRS wants everyone aged 73 or older to please remember to meet their annual RMD obligations. This isn’t just a friendly suggestion. Think of it as mandatory housekeeping: you made those contributions to your retirement accounts, and now it’s time to pay the piper and withdraw that minimum amount. It’s their quaint little way of ensuring you don’t use your hard-earned nest egg as a permanent tax-free piggy bank.
For the uninitiated, an RMD is basically the amount you must withdraw each year from traditional IRAs, SEP IRAs, SIMPLE IRAs, and other employer-sponsored retirement plans once you’re old enough to worry more about how to lower your golf handicap than about office politics. If you conveniently “forget” to take your RMD, the undistributed portion faces a tax that can go as high as 25 percent—dropping to a mere 10 percent if you fix your oopsie within two years. Aren’t they generous?
Which Retirement Plans Are Under the IRS Microscope?
IRAs: Traditional and IRA-based plans have zero interest in whether you’re still working or enjoying endless tennis doubles. Once you’re past 73, you’re taking those RMDs, period.
Employer-Sponsored Plans: If your plan is through your old company, you might dodge RMDs until you officially retire—unless you own more than 5 percent of the business. In that case, the IRS figures you have enough free time to do your math.
Roth IRAs: Roth owners are the lucky ones who don’t have to deal with RMDs during their lifetime. However, once they shuffle off this mortal coil, their beneficiaries get to join the fun.
Meanwhile, a newer twist courtesy of the SECURE 2.0 Act ensures that if you’re a Designated Roth account holder in a 401(k) or 403(b), you’re off the RMD hook, starting as of 2022. For those born in 1960 or later, enjoy postponing that RMD party until age 75—because nothing says “living your best life” like studying IRS worksheets well into your seventies.
Calculating RMDs: A Simple Math Problem Nobody Asked For
How do you figure out how much to withdraw? Take the prior year-end fair market value of your retirement accounts, divide it by a life expectancy factor conjured by the IRS, and voilà—you have your magic number. Want to withdraw more? Go ahead, overachiever, as long as you meet the minimum. Also, while each IRA’s RMD must be calculated individually, feel free to take the total amount from one or multiple accounts, whichever is simplest. After all, it’s your money and your complicated puzzle.
Don’t Rely on Others—Your RMD Fate Is in Your Hands
While IRA trustees or plan administrators can tell you how much you’re supposed to withdraw (or at least offer to do the math), it’s ultimately your responsibility to ensure everything’s on track. Consider their assistance as friendly advice from your financial fairy godmother—helpful, but not the ultimate authority. The IRS even provides worksheets to guide you through this riveting process. After all, who doesn’t love a good government-issued worksheet as a retirement pastime?
Original Source: IRS issues warning to millions of retirees, Newsweek, December 11, 2024
