A key year-end deadline is here for many investors — and skipping it could trigger an IRS penalty of up to 25%. But there’s a way to reduce or even eliminate it, experts say.
Most retirees must start so-called required minimum distributions, or RMDs, from pretax accounts at age 73. The first RMD is due by April 1 of the year after turning 73, and future withdrawals must happen by Dec. 31. Your RMD is based on your balances, age and an IRS “life expectancy factor.”
The year-end RMD deadline also applies to certain heirs, including non-spouse beneficiaries such as adult children, with inherited individual retirement accounts. Since 2020, these heirs must empty inherited IRAs within 10 years. They must start yearly RMDs in 2025 if the original IRA owner reached RMD age before their death.
However, experts say that changes in legislation and IRS guidance have made RMD rules more confusing — and errors can be costly.
“Missed RMDs are a billion-dollar mistake,” Aaron Goodman, a Vanguard senior investment strategist and leader of the research team, said in a report released by the company earlier this month.
