‘Tis the season for last-minute shopping, family get-togethers, and year-end financial tasks. But many Americans forget the last item – or don’t do it correctly – leading to tax penalties and, often, similar mistakes in subsequent years, according to a new report.
The analysis, from wealth management behemoth Vanguard, looks at Required Minimum Distributions. Millions of Americans participate in retirement accounts like 401(k)s and IRAs, which allow participants to tuck away money tax-free until later in life. As their name implies, RMDs set a minimum amount that must be withdrawn and taxed once those account holders hit a certain age – 73, for traditional IRA and 401(k)s.
Among Vanguard clients with traditional IRA accounts, nearly 7% of those for whom RMDs are required failed to take any withdrawal from their Vanguard account in 2024. Another 24%, meanwhile, took a withdrawal that was too low to meet the requirement.
The 7% who took no RMD whatsoever incurred a potential tax penalty ranging from $1,160 to $2,900, the analysis found.
What’s more, investors who successfully complete their RMD one year tend to do it again the following year – but 55% of those who miss an RMD one year also fail to take a distribution the next year.
