As 2024 comes to a close, many workers will need to take required minimum distributions (RMDs) from their retirement accounts due to age. For those turning 73 in 2024 or older, the deadline varies between April 1, 2025, for workplace plans and December 31, 2024, otherwise.
Failure to take RMDs can result in significant penalties. The government will assess a 25% penalty on unwithdrawn funds, but this can be reduced to 10% if corrected within two years. It’s often better to withdraw funds and pay taxes rather than avoiding RMDs altogether.
One common mistake is not taking withdrawals from all retirement accounts simultaneously. IRAs allow flexible withdrawal rules, while 401(k)s require individual distributions. Additionally, some may believe they can avoid RMDs by withdrawing from Roth accounts, but this is incorrect as these accounts are exempt from RMDs.
Another error is donating the RMD to charity without using a qualified charitable distribution (QCD). QCDs provide tax benefits not available through regular donations. However, the key differences between QCDs and personal donations must be considered, including how they affect adjusted gross income (AGI) and charitable deduction limits.
To avoid these costly mistakes, it’s essential to seek advice from a tax professional who can guide you through the specific requirements of your situation. Don’t delay in completing RMDs or QCDs before the end of 2024 to ensure compliance with IRS regulations.
Source: https://www.fool.com/retirement/2024/12/08/4-rmd-mistakes-you-cant-afford-to-make-in-2024