‘Tis the Season for RMDs

‘Tis the Season for RMDs

By: Max Valavanis, CFP®

While some seniors gleefully take their distributions for holiday shopping, others will sigh as the unneeded cash drains from their retirement accounts. Despite this, when Uncle Sam dictates that it’s necessary to take Required Minimum Distributions (RMDs) from your retirement, you oblige. For the uninitiated, RMDs are a form of distribution the IRS forces retirement account owners to take once they reach a certain age, which for 2024 is 73. While some exceptions exist for working seniors in their employer-sponsored accounts, most will be directed to partake.

In order to charge taxes on an otherwise tax-deferred account, the IRS mandates traditional retirement accounts to take these withdrawals. Rewinding the years to when Seniors deposited money into their traditional IRAs, 401ks, or any other traditional retirement accounts, that money deposited largely went untaxed. The benefit of these retirement accounts incentivizes the working population to save for retirement. Now, as Seniors withdraw from these accounts, the taxes must be paid. If a retirement account is titled as a “Roth” account, then RMDs are not necessary. This is due to the taxes paid upon depositing the money into the account.

There are two main RMD blunders I’ve seen Seniors make in my years as a Certified Financial Planner™. The first, and most common mistake, is either taking it out too late or not at all! The IRS mandates yanking out your first Required Minimum Distribution by April 1st in the year following your 73rd birthday. Unsurprisingly, the government shortens this due date to December 31st every year afterward. If you ever miss the RMD deadline, you’ll still have to take the withdrawal and a daunting 25% penalty will be imposed on top of your distribution.

The second common mistake occurs when a retiree has multiple retirement accounts with employers and personal IRAs. Many people believe that all RMDs are uniform and that you can siphon them all out of a singular account and disregard the others. To the dismay of many Seniors, this is not true. Required Minimum Distributions within employer accounts must be withdrawn from their designated accounts. Although IRAs have more flexibility, it is important to know the type of retirement accounts you own when determining the best approach to withdrawing the funds.

As you may have noticed, the process of withdrawing RMDs can sometimes be confusing. The IRS maintains numerous rules when accessing the money in your retirement accounts and we haven’t even scratched the surface. At ValaVanis Financial, one of our many areas of specialization is Retirement and Tax Planning. We have years of experience in handling Required Minimum Distributions while servicing households in Brevard County and the east coast. If you are worried about how to approach your RMD or simply would like a second opinion on your finances, we welcome you to call our office at (321) 956-7072. We offer a complimentary appointment to every reader of the Senior Scene.

Securities offered through J.W. Cole Financial, Inc. (JWC) Member FINRA/SIPC. Advisory services offered through J.W. Cole Advisors, Inc. (JWCA). ValaVanis Financial and JWC/JWCA are unaffiliated entities.